The Most Accurate Way To Calculate Cost of Turnover

 

Most organizations calculate the cost of turnover the wrong way. Cost of Turnover calculators are generally inaccurate, as other factors need to be included in the calculation that you cannot do by plugging in a few numbers. 

Additionally, the consensus that the cost of turnover is 1.5x someone’s yearly salary is not necessarily true. There are other factors that you need to consider when calculating the cost of turnover, as its impact can be more or less depending on your organization’s business model, the role within the organization and business process and procedures. Only then, can you get an accurate estimate of what turnover is costing you and whether it’s worth investing resources to lower the cost. 

Below we provide the 3 key factors that you need to consider when calculating the cost of turnover. We also provide various examples and graphs to demonstrate how we’ve helped calculate the cost of turnover for different types of organizations.

1. Recruiting Costs

This part of the cost or turnover calculation is more straightforward and one that most organizations do get right. When someone turns over, your recruiting expenses, such as recruiter fees or job boards, should be included as a cost of turnover. However, one area where we’ve seen organizations miscalculate turnover costs is when factoring in recruiting staff. If your organization has to hire additional recruiters or talent acquisition specialists due to high turnover rates, then that should be included in your cost of turnover calculation.

As an example, the below company has to factor in additional salary costs for two recruiters due to high turnover rates. They have to include this on top of what it costs to recruit including technology, recruiting fees and job board postings so it provides the most accurate cost of turnover metric.

Figure 1 Reduce Hiring Costs

2. Onboarding & Training Costs

Another key consideration when calculating the cost of turnover is to include onboarding and training costs. Onboarding and training costs can include technology, staff, consultants, travel and anything else related to getting a new employee up to speed. The reason you have to include this into your cost of turnover calculation is that anytime you hire a new employee you have to make an upfront investment for them to be part of your organization. So if you have high turnover or attrition in a role, you could be spending extra time and money. One key factor that often gets overlooked when calculating turnover costs as it pertains to onboarding and training is the time it takes for a new employee to start producing in the role.

As an example, the below company is calculating the cost of turnover as it pertains to their sales representatives. At this company, it takes an additional 2 months after onboarding and training for a sales rep to start producing revenue. This means they need to factor in this time lag into their onboarding and training costs, as the sales representative isn’t producing revenue yet in the role.

Figure 2 Reduce Hiring Costs

3. Productivity Costs

The last factor that needs to be considered when calculating the cost of turnover is productivity costs. This cost often gets overlooked by most organizations and cost of turnover calculators, but its one of the most critical. When calculating cost of turnover, productivity is a real cost to the organization especially when it can be tied back to dollars and cents. Some examples of lost productivity costs having an impact on productivity are limited in manufacturing capacity due to lack of staff or lost deals due to sales representative attrition. Depending on the team and business model for the organization, the productivity costs can vary greatly from nothing to millions of dollars.

For example, at a recruiting agency, we had to factor in productivity costs for when recruiters turned over on their commission based recruiting team. Our analysis identified that when a recruiter leaves the organization, there is a 15% drop in candidates being placed by the recruiter for the next 3 months. This could be due to the recruiter having relationships with the candidates and taking them to another firm, or due to the lack of hand off to new recruiters leading to lost business.

Figure 3 Reduce Hiring Costs

Ready to calculate cost of turnover for your organization? Contact Us to learn more about how we can help.