Employee turnover: measure it and roll in the money!

The term “employee turnover rate” refers to the percentage of employees who leave a business over a certain period of time.

While a certain level of employee turnover is unavoidable, high rates of employee turnover generally equates to high cost. Research from the Institute of Managers & Leaders (formerly the Australian Institute of Management) has found it costs an average of $22,135 to attract, hire and train a new employee.

Employee turnover costs more than many business owners appreciate. Direct costs, including the cost of the employee leaving and replacement costs are generally recognised. Indirect costs are harder to quantify and tend to be overlooked. Such costs include reduced performance from the departing employee, lost productivity while the position remains vacant, the cost of formal and informal training to get new hires up to speed and the financial impact of low morale from remaining employees who witness their colleagues departing on a regular basis.

Whichever way you look at it, high levels of employee turnover cost the business time, effort and money: recent research from PricewaterhouseCoopers (PwC) has found that the cost of each employee leaving a business is anywhere from the departing employee’s annual salary to 2.5 times its equivalent.

It’s said that it’s possible to improve anything that can be measured. So why don’t SME’s utilise employee turnover calculations more often? Well for a start, many business owners don’t know such calculations exist. And once turnover is measured, they’re not sure how to utilise the information to their advantage. So time for some learnin’. Here’s a simple employee turnover calculation method:

1. Calculate your average number of employees
Number of employees at the beginning of the year plus number of employees at the end of the year ÷ 2

2. Calculate the turnover rate
Number of employees who left the business ÷ by average number of employees

Turnover calculation example

Brand X Surf Designs starts 2017 with 7 employees, ends 2017 with 11 people, and had 3 people leave during that year. Brand X’s turnover rate is calculated by:

• 7 employees + 11 employees = 18 employees
• 18 employees ÷ 2 = 9 (average number of employees)
• 3 employees who left the business ÷ 9 (average number of employees) = 33% employee turnover rate

So what can we do with this information? Plenty. And doing the right things with it will not only save you money but also generate more revenue, improve productivity and help you keep your best people. Like the sound of that? Give Bare Bones Consulting a call or contact us here. We can show you how measuring your employee turnover can pay off big time.