The Hidden Costs of Employee Churn (+How to Avoid Them)
Talent acquisition and management is a constant challenge for any organization. Of particular concern is keeping the employees you’ve spent so much time, money, and energy recruiting and training with your company.
Employee churn, employee turnover, employee attrition—whatever you call it, losing an employee you’ve spent time and other resources on building up to be part of your organization can hurt your bottom line.
What is employee churn rate? What is the cost of employee turnover? How can you prevent employees from leaving?
What is employee churn rate?
A company’s employee churn rate is a measure of how many employees leave the company in a given period of time. This metric is often expressed as a percentage.
For example, if a company has 150 employees, and 15 of them leave in a month, the employee churn rate would be 10% for that month.
One of the challenges of dealing with employee turnover is that it can be variable by industry and job role. Some jobs, like working in a call center, have numerous stress factors that contribute to employee churn.
The hidden costs of employee churn
What is the cost of employee churn? The answer varies depending on the employee in question and other factors. Studies cited by organizations like Peoplekeep “predict that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average.” In other words, if an employee making $90k a year decides to quit, it could cost between $45k and $60k to replace them.
While the “6 to 9 months’ salary” figure might seem a little high at first glance, there are numerous costs associated with replacing an employee. In fact, for some roles, the potential impact of the hidden costs of high employee churn could be even more dramatic.
Aside from direct costs like marketing a job opening, onboarding the new employee, and providing training (and pay during said training), there are also hidden costs to consider, like:
- Lost productivity. Unfortunately, an employee’s departure doesn’t make all of the work they were responsible for go away. In many cases, the loss of an employee, especially one with hard-to-replace skills, means a significant loss of productivity. If an employee is the only person in the organization with a particular skill or knowledge set, then all of the work they were responsible for may grind to a halt until a suitable replacement is found. Even if there are other people with similar skills, taking on the workload of a missing employee on top of their own will still result in delays. This lost productivity can have a direct negative impact on your bottom line.
- Lost customers. For some employees and job roles (such as sales), losing the employee could mean losing access to their list of clients or the relationships that they had built up with customers. Even with a no-compete clause, there’s always the risk of customers leaving if their preferred team members leave the company. Additionally, a new hire might make mistakes that the old employee would not have—souring the customer experience and costing the company business.
- Negative workplace culture. One of the potential impacts of a high employee churn rate is that it could create a hostile workplace culture—one that can impact both productivity and worker health. As noted by Quartz, “Studies find that workers who fear being laid off are less safety-conscious, more likely to get injured, and less likely to report injuries.” Employees who have issues with job insecurity (from frequent layoffs, poorly-structured stacked ranking systems, and other issues) are also more likely to engage in reckless or questionable behaviors that cause problems for the organization. High churn rates can contribute to a hostile work environment that leaves employees feeling disengaged and makes people even more likely to quit.
Where the direct costs of employee turnover, such as training, marketing open positions, and onboarding employees are relatively easy to calculate, the hidden costs can be more difficult to prove without really good analytics and data.
For example, one way to estimate lost productivity would be to compare the new hire’s performance against key performance indicator (KPI) benchmarks set by their predecessor. This could provide a rough idea of the lost productivity caused by the loss of the original employee. A KPI tracking tool would be ideal for this.
6 ways to avoid the costs of employee churn
So, how can you avoid the costs of high employee churn? Here are a few ideas:
1. Look for common issues that may cause employee churn.
The most direct way to prevent the cost of high employee turnover is to prevent said turnover in the first place. A good starting point for this process is to try to identify common factors between each of the employees that left the company. For example, did the majority of them work in the same department or have the same direct report? Were they putting in a large amount of overtime? Were their KPI goals specific, measurable, achievable, relevant, and timely?
If many ex-employees have something in common, then that thing could be the cause of the high turnover rate. By identifying such issues, you can take steps to resolve them and (hopefully) prevent future employee attrition.
2. Check out what other companies in your industry are doing.
What are your competitors doing to keep their employees? Are they doing anything to retain their top talents? You can check what others in your industry are doing to keep their best people then use that information to one-up them—either by offering an improved version of the same benefits or by covering gaps that they don’t address. This can help motivate employees to stay with your company.
3. Weed out the “bad eggs” fast.
It may sound counterintuitive, but being able to quickly fire a bad employee can be crucial for reducing overall employee churn. Why? As noted in an article feature on Inc.com, “if someone is not carrying their weight without consequence it sends a negative message to the other employees.” Bad employees can negatively impact your corporate culture and lead to more widespread disengagement.
If an employee is actively malicious towards their coworkers, then they may make good employees leave. Plus, by eliminating bad fit workers quickly, you can minimize the disruption and resource waste they cause by leaving.
4. Offer opportunities for employees to change roles or advance.
One way to keep employees (and attract high-quality talent) is to focus on providing career development opportunities. Basically, this means offering to help employees learn new job skills so they can be promoted or move laterally into a new role if they want to try something different. This can help to keep employees motivated and engaged with their work.
Additionally, it can reduce churn by giving employees who would otherwise leave to discover new career opportunities a chance to try something new without having to change employers.
5. Revise your recruitment and onboarding processes.
How does your organization currently handle attracting new employees and getting them up to speed? Are there issues in the onboarding or recruitment process that might be giving potential hires the wrong impression about the work? Are the people being attracted through your current recruitment efforts a good fit for your company’s culture?
Reviewing your current recruitment and onboarding process to make sure that it helps set the right expectations of new hires (and attracts the right people) can be critical for reducing employee turnover in the long run. After all, if you hire someone and their expectation is to work 9 to 5 as a software developer, but is expected to work 8 to 6 and do copywriting, graphic design, and business process optimization, they may quit in frustration if they weren’t prepared for the actual expectations of the job.
6. Provide ample recognition for major accomplishments
It can be frustrating for employees to work hard to accomplish things, only to not receive any recognition or rewards when their efforts go above and beyond what’s expected of them. Employees who routinely exceed their goals may stop trying so hard after weeks, months, or years of not getting recognition for their results.
Being able to track what employees are doing and rewarding those who exceed expectations can be an effective way to increase engagement and retain top talents—and saying “thank you” to a hard-working employee doesn’t cost a thing! This is why providing recognition is a goal management best practice.
Are you ready to reduce your employee churn rate with BrightGauge?
What does BrightGauge have to do with reducing employee churn in your organization? Using goal setting and management tools like BrightGauge can play a key role in your employee recognition and retention efforts!
By using a KPI dashboard and tracking tool, you can easily monitor which employees are going the extra mile to deliver results. This, in turn, makes it easy to provide recognition for people who are generating genuine results.
Additionally, by tracking KPIs for everyone in a given job role and taking a close look at the results, you can more easily identify goals that need revision. For example, if 98% of all sales reps in your organization are failing to meet a goal like “close 25 deals worth $10k each in a week,” then you might need to revisit that goal and make it more realistic. On the other hand, if everyone is meeting that goal with room to spare, then you might need to make it more aggressive.
By accurately documenting real performance and process metrics with BrightGauge, you can show employees where they need to improve in greater detail. This can help with your performance improvement plan (PIP) creation so you can improve productivity without having to onboard a new employee from scratch.
Are you ready to step up your employee retention and performance management? Reach out to the BrightGauge team today!