I’ve spoken with many clients and connections about the cost of human capital. One of the most common metrics that comes up is turnover, but that metric by itself can be a bit deceptive. Many companies will know exactly what their turnover is, but when asked “what does that turnover cost you?” their answers start to get a bit vague.
Average turnover varies dramatically by industry. In high tech industries and municipalities, you could expect to see turnover in single digits. In call centers and retail, it can be much higher. But it’s not the actual number that’s important, it’s what it costs to lose and replace those people that matters. For example we studied two departments in different companies that had roughly the same amount of turnover. Both were about 65 people in size and had turnover of about 8%. However, the cost of turnover was about $100,000 per year for company A and almost $500,000 for company B.
Why the difference? It’s all to do with the how they hire, and the lost productivity and ramp-up time of the employees that turnover. Company A uses no external recruiting agencies, and has efficient training and mentoring that allows the employee to become productive in a very short space of time. Company B pays for recruiting, has a less defined recruiting and training regimen, and has a complexity that takes most new hires between 8-9 months to master and become productive. To have an equal “cost” of doing business, Company B would actually need to cut its turnover by a factor of 5 to be on the same level.
Why do companies have a vague answer when it comes to cost of turnover? There are many aspects to revealing the true cost of turnover, and quite honestly companies don’t do a good job of tracking the details. They fixate on the aggregate information, but miss the details that show the actual cost that’s important.
At Shadowmatch, we believe in making decisions on accurate and actionable information. Cost is one of the best details to study when trying to improve and we’d like to invite you to learn about your costs. If you would like to see exactly what your cost of turnover is, just email us and we’ll show you what you’ve been missing.