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How to think about the cost of employee turnover

How to think about the cost of employee turnover

It’s time to start thinking critically about how to increase employee retention.

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All Resources How to think about the cost of employee turnover

Employee turnover, like cigarettes in the 1920s, is generally understood to be bad, but there is little awareness of its quantifiable impact.

A visual way to gain a mental framework for the cost is to simply draw a graph of an employee’s value to the company over time.

Maia Josebachvili, VP of of People at Greenhouse, produced a case study where she argued that retaining a sales person for three years instead of two, along with better onboarding and management practices, yields a difference of $1.3 million in net value to the company over a three year period.

Greenhouse Graph

Slightly more conservatively, Josh Bersin of Deloitte believes:

‘‘ The cost of losing an employee can range from tens of thousands of dollars to 1.5–2.0x the employee’s annual salary. ’’

These costs include hiring, onboarding, training, ramp time to peak productivity, the loss of engagement from others due to high turnover, higher business error rates, and general culture impacts.

Employees, Bersin explains, are appreciating assets that produce more and more value to the organization over time, which helps explain why losing them is so costly.

Cost to Value of an Employee

Others sources peg the cost of regrettable employee turnover at a higher level. A paper from the Center for American Progress, citing 11 research papers published over a 15-year period, determined that the average economic cost to a company of turning over a highly skilled job is 213% of the cost of one year’s compensation for that role.

No matter how you slice it, the cost is high. But how high is it for you?