Unseen costs of employee turnover
We all know that it is cheaper to retain clients and employees than it is to win new ones. There are a lot of figures flying around in media articles from Forbes, and The Economist, but we can't see their 'workings'. There are some online calculators too, but most navigate in a way that prevents one from 'playing' with the inputs. I had a challenging discussion with a company director some weeks ago about their staff retention headache. It led me to build my own 'Cost of employee turnover model' - not because I didn't think I couldn't find one online, but because I wanted to think about those 'workings' myself, and include some of the 'unseen' costs. My former financial analyst colleagues might take umbrage that I've even called it a model, simple and only moderately dynamic as it is. Look away now all professional modellers!
This model is not meant to be comprehensive - there are definitely parts missing, and one size does not fit all. There are myriad other inputs and factors that you could add. I'd be interested to hear what others you would include as a minimum.
This model reflects the value or income generation of the incumbent employee, their productivity in the period before leaving, and the impact that their departure might have on colleagues around them. It also considers recruitment and training costs, and the time it takes replacements to 'get up to speed'.
My example tells this story: Jenny earns £65,000* in a sales/client facing role decides to leave. She has been there a while and generates about 3x* her salary in income or value for the company. She is pretty fed up and has been thinking about leaving for 3* months. In those 3 months Jenny's productivity*, unsurprisingly, has taken a bit of a hit. Not only that, she is well liked at work and good at her job, and the person she works most closely with (who is also an income generator*) is gutted that she is leaving. Her productivity* hasn't exactly been great for 3* months as a result either. The company engage their go-to recruiter* who they pay a fee* to, and find someone to replace Jenny, but it took 2* months. The replacement needed some training*, and because of the nature of the product and client base, even though he started bringing in revenue straight away*, it took a while (24 months*) for him to hit his targets*.
*these are all inputs in the model that you can control.
In this example, the basic cost to the organisation (ignoring other factors you may wish to add) of losing and replacing Jenny, is £226,180, or 3.5x her salary. Gulp.
If you would like a copy of this model (which has a cell-by-cell input guide) I would be happy to send it to you by email. Please contact us through the website or email us at info@orwellindependent.co.uk
