In an ever more competitive economy, hiring the right person for the right job has never been more critical. With more millennials entering the workforce each year, companies are finding that turnover costs hinder their ability to scale and thrive. Various strategies have been employed to reduce turnover in almost every industry. Most have yielded only modest results despite significant investment.
It’s not a revelation that high employee turnover can be devastating to any company. Whether it be:
Direct replacement costs like:
Or indirect costs like:
- Lost productivity
- Damaged client relationships
- Decreased revenue
- And lowered employee morale
The bottom line is that the cost of turnover can be massive!
How Much is Your Company Losing in Turnover Costs?
According to the Department of Labor, the cost to replace a bad hire is estimated to be 30% of that employee’s annual salary. And those are just the replacement costs. When all factors are taken into account, the cost of a bad hire can be as high as 2-5X that employee’s annual salary (Leadership IQ Institute).
Whether it be 30% of that employee’s annual earning potential, or 500%, understanding your turnover costs can be eye opening. The graph below will help provide a conservative estimate of how much your company may be losing in turnover costs:
Illustration A: Estimated annual cost of turnover for a 100 person organization, assuming the 30% of salary replacement cost.
Interested on how much turnover is costing your company? Click here to download our turnover calculator.
Great News! There’s a Proven Way to Reduce Turnover:
The biggest challenge when it comes to turnover is identifying the root cause(s) of the problem. Companies spend hundreds of thousands of dollars monitoring employee engagement, adding expensive company perks, training managers, etc., all under the assumption that such efforts will help reduce their turnover. The reality is that although these methods each have merit, they are, in fact, not the main driver behind high turnover.
According to the Harvard Business Review, 80% of turnover can be attributed to bad hiring decisions. This implies that post-hire programs and initiatives (where the vast majority of turnover reduction efforts take place) focus primarily on the remaining 20%.
Tackling turnover by modifying your candidate screening process represents an enormous opportunity for companies of all shapes and sizes. Companies that take this seriously will reap the rewards of appreciable improvement to their employee retention over time.
Enjoy this article? This is a small portion of our hiring guide "The Ultimate Hiring Guide for Reducing Turnover." Take a look!