The Hidden Costs of Employee Turnover
This story appears in the September 2011 issue of Entrepreneur. Subscribe »
Employee turnover has some obvious costs associated with it, including recruitment, training and salary. However, every time an employee leaves, there are a variety of hidden costs you might not have considered, says Toronto-based human resources consultant Tom Armour. While you might not be writing a check for these costs, here is how turnover can drain dollars:
Slippage. When an employee is missing, the work that isn’t getting done has a price attached to it, Armour says. Lost sales, production delays and lags in new product introductions all cost your company money.
Ripple effect. Turnover has an impact on the peer group, as well as the management chain, making everyone less effective. Co-workers need to pick up the slack, distracting them from achieving their own performance goals while managers need to devote time to finding a new employee. "One CEO I spoke with had his five-year growth plan turn into a six-year plan because of delays due to employee turnover," Armour says.
Customer loss. When a knowledgeable employee leaves, taking experience and customer service ability with him or her, that can have an impact on customer satisfaction. "Customer commitments are often not met, and the company loses important customers," Armour says. "Dealing with trainees can be challenging. If you have a lot of unwanted turnover, customers can get annoyed or begin to lose interest in your business."
Lost credibility. Turnover is a cost to management in two ways, Armour says: Management can lose credibility when it creates an environment with excessive turnover, and existing employees can become demoralized and decide to move on.
It’s important for smaller businesses in particular to work on creating environments that retain employees. "Too often, small-business owners don’t consider how important it is to invest time and resources into their employees," he says. "Either way, you pay."