Employee turnover costs a LOT more than you think
Employee turnover cost
Most companies significantly underestimate the employee turnover cost. Let's do the math!
How much does employee turnover cost? Let's look at data from a company we work with.
This company's average sales rep bills $20k / month. If a sales rep resigns, it takes them about a month to replace the person, and about three months for the new sales rep to ramp up and make their first sale. What's the cost?
Average monthly billing: $20k / sales rep
Average replacement time: 1 month
Average ramp up time: 3 months
Revenue loss: $20k x 4 months = $80k
On top of this come the job board fees, the cost of screening and interviewing, the cost of onboarding and training, the cost of the extra management time needed to support the new hire. Tally up the numbers, and you get a loss of over $100k every time the company loses an average sales rep, and a lot more when they lose an A-player.
The opportunity cost
And what's the opportunity cost?
From the $100k they've just lost, the company could have hired two more sales reps, who would have billed an additional $360k within a year from their start date. How many more sales reps could they have hired from that amount? You do the math!
Intangible costs
Employee turnover also comes with additional costs that are harder to quantify, but no less important.
What is the effect of turnover in sales and customer service on customer experience? The effect of turnover in your development team on your next product launch? The effect of turnover in your finance team on cash flow and compliance? The effect of turnover in your management team on your culture and employee morale?
Is there such a thing as healthy turnover?
It depends.
If you're undergoing a major strategic realignment or culture change, turnover is inevitable, and sometimes much needed.
If you're in a phase of hypergrowth, it is likely that not all of your employees can keep pace.
But barring such situations, employee turnover is a sign of either of two things, neither of which is very healthy:
You are hiring the wrong people
People don't like working for you
In conclusion
Employee turnover significantly limits companies' ability to scale, and has a tremendous impact on the bottom line. As a result, CEOs should make this a key HR metric and demand improvement.
You can read more about what you can do to reduce turnover in the next piece of our HR² series.
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