HR Managers: Understanding the Real Cost of Turnover

High turnover is a real problem for many companies. In fact, studies show that high turnover costs US businesses billions of dollars every year. Worse, high turnover rates can indicate other problems within an organization.

It’s little wonder HR managers are so concerned about turnover and, specifically, with managing it.

Why Worry about Turnover?

Although many HR managers realize high turnover is bad news for their organizations, some still don’t see the true costs. Yes, they know the statistics; high turnover costs businesses a lot of money. Often, however, those are just the upfront costs. There are other, hidden costs HR managers need to be aware of.

Investment in Employees

The most obvious costs associated with turnover are the ones HR managers are familiar with: the investment in employees.

Hiring and training is a time-consuming, often expensive process, which is why firms are so careful about hiring the right candidates. Companies do not want to waste time and money on the wrong people. The longer an employee stays with the company, the greater the return on the initial investment.

Of course, there’s also additional investment in employees along the way. Clearly, their salaries and benefits are “investments,” along with any technology and training opportunities you supply. Good employees are also productive, and it can be difficult to replace productivity. It’s much more economical to retain top-tier talent—even if it can be tricky to do.

Lost Revenue

HR managers may be aware of a second arena where turnover costs money. Turnover hits your business on the bottom line. When an employee leaves, you lose productivity. Sometimes, the loss is temporary; when you find the person’s replacement (hopefully sooner, rather than later), productivity rebounds.

Rebounding productivity is dependent on finding the right person. An excellent employee may have just left the company and you have to replace him or her with someone who doesn’t have quite the same skill set, or perhaps just not the right fit. In turn, productivity never rebounds to its previous levels, resulting in a lower bottom line.

If the company has high turnover, productivity may never rebound and, in fact, will likely suffer, as periods of hiring and training begin to overlap. Multiple job vacancies can cause huge headaches for firms. If you rush to fill those openings, you could end up with the “wrong” people in those jobs—resulting in lower productivity.

Your Reputation Can Suffer from High Turnover

HR managers need to be aware high turnover can also cost a firm its reputation. While many job openings might portray growth, a succession of mid-level postings or repeat postings for the same position will have job seekers wondering if your firm is really a great place to work.

Worse, in the age of social media, job seekers can often read reviews on sites such as Glassdoor.com from people who held positions at your firm or even contact them. While a non-disclosure agreement might keep former employees from talking, there will often be those who do—and of course, there are rumors in network circles of what is going on within a company.

Taken together, these factors can weigh heavily on a company’s reputation as a great place to work. Sure, you might offer benefits and competitive wages, but if your firm is such a great place to work, why is there a turnstile in the lobby? This situation can even spark rumors that your firm’s in financial difficulty.

Customer Service

Your customer service might also suffer if you have high turnover. Inexperienced employees may not provide customers with an excellent experience—which can cost you customer accounts. Customers may grow leery if you seem to have high turnover; if they’re constantly dealing with a new account representative, they may wonder if you’re treating your employees poorly, or they may become frustrated and decide to do business elsewhere.

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