Calculating employee turnover can be the first step toward improving your entire business
You’ve worked hard to build your business and make it a profitable venture — so why does it feel like you’re bleeding money, even after all this time? If you’re like many business owners, you may be underestimating the cost of employee turnover and the effect it’s having on your entire company.
According to the Society for Human Resource Management, replacing an employee can cost about 50-60% of their annual salary. Total costs associated with turnover can skyrocket to 90-200% of a former employee’s annual salary. We aren’t talking about pocket change; that’s for sure.
Calculating Employee Turnover Within Your Company
Wondering if employee turnover could be responsible for some of your company’s financial challenges? The best place to start your search is by calculating the employee turnover percentage in your business. All you need is a piece of paper, a pencil, and some very basic math skills.
Some business owners prefer to calculate this percentage on a monthly basis, while others prefer doing it quarterly or even annually. For the sake of this example, we will look at how to figure out your company’s monthly turnover rate.
First, you’ll need to know how many employees left your company during a one-month period and the average number of active employees you had working for you during that same time frame. Then, you’re going to divide the number of employees that left by the average number of active employees. Take that number, and multiply by 100.
So, if you had an average of 100 employees last month but lost two employees, your monthly turnover rate would be at 2%.
Once you’ve finished calculating employee turnover and you’ve got your monthly percentage, you’re probably going to think, “Great, now what?”
Take that number and head over to the U.S. Department of Labor’s Bureau of Labor Statistics website. Every month, they publish a report based on a job openings and labor survey. The results are broken down by industry, since certain industries simply have a higher turnover rate than others. Compare your number to the numbers that most closely match the industry you work in, and you’ll be able to get a better idea of where your business stands.
If you are interested in taking your calulations a little deeper, the Montana Department of Labor & Industry offers an excellent employee turnover cost calculator. It will help you break down and calculate costs during the notice period, the vacancy period, and the hiring/orientation period, as well as hidden costs.
How to Avoid Employee Turnover and Keep Your Staff Intact and Productive
If you’re going to avoid the high costs associated with employee turnover, then you’re going to have to (surprise, surprise) stop giving employees reasons to leave. Yes, there are always going to be reasons employees leave that you can’t do much about—but there are changes you can make internally that encourage retention and will hopefully improve your bottom line and company as a whole.
Hire the right people. This may seem obvious, but not every business takes the time to hire the best person for the job. Sometimes, in an act of desperation, a busy manager will hire the first competent person they interview because they “need” to get the position filled immediately. Other times, a candidate will be referred by a respected current employee and the hiring manager will offer them the position after chatting for only 15 minutes. Take the time to conduct a thorough search—look for a candidate that is not just “good on paper,” but also a solid cultural fit for your company—and you’ll have better luck getting them to stick around for a while.
Make your employees feel valued. According to a survey by the American Psychological Association, half of all employees who say they do not feel valued at work report that they are planning to look for a job in the next year. When employees don’t feel like they matter to you, they will look for an employer who does care. You can make employees feel valued by listening to their suggestions, offering frequent praise, and hosting occasional social events. A little boost in pay at regular intervals (if appropriate) doesn’t hurt, either.
Provide opportunities for advancement. Many employees have goals and aspirations—they want to grow and advance in their field during their working years. And if you’re not going to provide that opportunity, they will find it somewhere else eventually. Create a culture where you provide training/learning opportunities, gradually increase the responsibility of employees, and promote from within. If employees can see you’re invested in their growth, they are going to stay and help your company grow.
Making Small Changes Can Create a Big Return
Owning a business can be tough, but if you’re regularly calculating employee turnover and taking steps to improve that number, your profit margin is going to reap the benefits over time.
If you’re not positive where you’re falling short when it comes to employee turnover, be sure your Human Resources department is conducting exit interviews. Employees can be quite honest in exit interviews about why they’re leaving, and the information they share can be very eye-opening. Take the time to ensure your employees are happy, and your entire business will thrive.
While you're thinking about keeping your employees happy, take a look at the benefits you offer your staff. If you need to supplement your benefits package, we can help.
Do you have any additional tips on calculating employee turnover? If so, let us know in the comments!