Many Managers are so busy they don’t always think about figuring out how much it costs to replace a person in their department. If you’re one of them you might be surprised to learn just how high the cost of turnover is.
Numbers Don’t Lie
There’s something about seeing concrete numbers that leave an impression and leads to a shift in our thinking. Managers move from, “If they quit, they quit. We’ll just have to replace them” to “How can we save them?”
Competitive Wages Pay in the Long Run!
Last year I worked with a company that was experiencing high turnover in a couple of their departments. We will discuss Department A in this post. No exit interviews were done, and the Manager said most of the people he lost told him they had gotten a better opportunity.
After attaining some information, I felt strongly the problem was related to salary but still needed to rule out additional issues. I conducted interviews with current and former employees who confirmed the discontent was all related to being underpaid. The Manager was hiring people at a rate that was 12.5% lower than what the market was calling for. He was trying to contain costs so the department would be more profitable, and he believed that if people left the company, he could just hire more at the same pay rate which would continue to keep costs down. He never considered the cost of high turnover.
A Revolving Door is Money Down the Drain
I analyzed the numbers and met with the Manager who was shocked to learn that if he had paid new hires $5K more, and tweaked the salaries of those who weren’t new hires to correspond to the new starting rate, it would have cost less than it did to replace all the people who had quit. The cost of turnover was more than $100K to replace the employees that had left the company that year. That number was slightly higher the previous year.
I also showed him that if he had adjusted the pay scale two years prior, and given everyone on his team an (unlikely) increase of 7 or 8% at their annual review, he still would have spent less money than he did by having a revolving door for two years. Even if he had lost a couple of people along the way, he would have run a more profitable department.
After working together and adjusting the pay scale, this manager has lost one person in the past fourteen months. He’s reported back to me that attitudes and productivity have improved, and he’s much happier doing his job.
Do you know what the cost of turnover is in your department?