The cost of staff turn over, and the effect on your business

The cost of staff turn over, and the effect on your business

Following My February blog where we looked at who or what was really controlling your business and in March we looked at why it is no longer the right way to manage staff by just telling them what to do, I want to follow up by discussing the cost of staff turn over and the effect on your business.

Do you know how much employee turnover costs your business each year?

As a business owner, you will know how essential it is to understand how different events affect your bottom line. Sometimes this is as easy as checking an invoice, but other cases it is not so clear such as employee turnover costs.

There are statistics out there, and the cost is related to the level of experience and expertise, but we also need to look at the reasons for employee separation, and what you can do to prevent it, if anything. I do not want to quote average costs so in this article we will simply look at the Why.

From a Human Resources perspective, we split the reasons into Voluntary and involuntary separation, and the voluntary separation can be further broken down into Retirement and other reasons.

It is the “Other” voluntary separation that I would like to focus this article on. This means that the employee chose to leave for some reason of their own. If you look at common reasons from exit interviews, you will see reasons like those below:

  • I had no room to grow
  • I was offered a higher pay elsewhere / found a better paid position
  • I was not using my skills to the fullest
  • It was a toxic work environment
  • I want to make a career change
  • I am looking for a better work-life balance
  • I am relocating / personal Issue/ family circumstances
  • Health reasons

While not a complete list, it certainly highlights some issues that could be addressed to reduce the turnover. I recommend that you do exit interviews whenever you can.

Now, lets look at the costs associated:

  • Recruiting and hiring costs
  • Onboarding expenses
  • Lost productivity
  • Reduced employee engagement
  • Increased risk of errors
  • Knowledge Loss


You need to advertise your positions and maybe hire recruiters or offer referral bonuses. Assessment tests, background checks, and even travel or interview expenses. Do you include signing bonuses in their offers of employment?

Your managers and supervisors also have to take time away from their jobs to shortlist, interview and vet them.

Onboarding expenses

The average company spends 35 hours training a new hire, but for some positions it may take at least 6 months to come up to speed.

Once an organization has hired someone, that new employee needs orientation and training and onboarding. They will require assistance from colleagues during the onboarding period, and every minute an employee spends training a new employee is a minute they’re not producing their own work.

Lost productivity

When an employee leaves, their responsibilities are passed onto the other employees, adding additional work to their day. However, when you’re short-staffed, there will always be work that won’t get done.

Job dissatisfaction can increase when employees are given additional work and longer hours, causing them to question their own reasons for staying with an organization. Low employee morale will result in decreased productivity, creating a cycle that can also lead to negative changes in company culture.

Reduced employee engagement

Anytime someone leaves your company, there is a ripple effect for the employees left behind. Other individuals may start to question why that person left. Depending on their outlook, they may start looking for another opportunity as well.

You may see reduced engagement from employees who cover for a temporarily vacant role. This process will force them to spread themselves thin, and it can also leave them feeling burnt out from the extra hours. As a result, that transition period could spur further turnover.

Increased risk of errors

When you lose an employee, you also lose important knowledge and experience with procedural work, this can result in costly mistakes. Even if you spend extra time to help ensure these errors don’t occur, that simply means you or someone else is spending extra time to address something that your departing employee handled regularly.

Lost institutional knowledge

Strong employee requires are much more than just performing particular duties in thier role. Strong employees understand how their organizations function, from the people to the relationships and the culture. This kind of institutional knowledge takes time to build.

Depending on an exiting employee’s responsibilities and seniority, as well as the circumstances of their departure, the turnover cost related to lost knowledge can exceed that employee’s annual salary. From documenting their responsibilities and processes to taking clients with them when they leave, and leaving knowledge gaps in their wake.

What is your Employee Retention Plan?


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