How not to Burn Your Money; Reducing Employee Turnover

When I started writing this article, I wanted to talk about continuous training for you and your employees. I wanted to extol the virtues of keeping your staff current with modern trends. But in the middle of writing and researching, I changed my mind. I realized there was an important thing I needed to share with you. I want to tell you how to save your money.

Maybe this isn’t the best thing for me to tell you, because it’s really how I make my living, but I am going to share with you some of the secrets to increasing your profits.

I know you cringe at burning through your business capital. None of us like to see our hard earned money disappearing on wasted projects or poor decisions. We know it happens, be we still don’t like it. So why are you wasting your money by not zeroing out your employee turnover?

Employee retention

What’s it worth to you to keep an employee?  Not in a metaphysical, feel-good way, but in dollars and cents. Maybe I can’t tell you that, but what I can tell you is what it costs to replace an employee. While there are a variety of opinions, and actual measurements seem hard to come by. Estimates range from 50% to four times an employee’s salary.

Let’s think about that for a minute. That’s a big number.

If a person is leaving, it’s for a reason. You can bet that reason is not because they are happy where they are. There is a good chance, a more than likely chance, that the employee who is leaving was not working anywhere near peak efficiency. That’s lost productivity.

Once they are gone, there is the cost of more lost productivity. You now have one less person doing that work and are burning up the people who are there a little faster. Then there are the payouts, compensations, vacation time, severance, etc.

After that, factor in the cost of hiring a new person. That takes up the time of the entire hiring team, even if you’re using reliable recruiting firm (which will save you money).

We are not even done! You have a new person on board, but how well can that person know the work? That person needs training, and that takes the cost of the new salary, plus that of the trainer. And then there is the efficiency and the cost of mistakes that are part of the learning process!

I am exhausted from just going through that. What a headache.

What does training have to do with employee retention?

Funny you should ask. The thing is, most people don’t leave their jobs for more money.

The reasons people leave are a lot more mercurial than just the paycheque at the end of the day. In fact, the money often has very little to do with the reason people move on to another job. While measuring satisfaction can be an elusive target, exit interviews give us at least some context.

In fact, the number one reason people leave is lack of future career. The thing is, this doesn’t mean promotion. In fact, it typically means the opposite. People are looking for growth and leadership opportunities. Employees are 21% more likely to stay when they have a path to employability. More than twice than title progression.

Really, what does the cost of some evening classes or a weekend course compare replacing good people?

According to another study, 70% of employees are dissatisfied with their work. Most people would up and leave if they found a reasonable opportunity. Let that sink in. What’s keeping your people at your company.

If that number seems gross and scary, consider this, only 29% of employees in the US and Canada are engaged at work and 18% are actively disengaged.

How can we translate this into something meaningful? The balance is keeping your employees engaged by offering them career planning and training. Doing this increases their satisfaction and that, in turn, increases their productivity.

Do you see where I am going with this?

Understand, this is more than the weekend course in team building, this is career growth through experiences.

Workplace efficiency and loyalty

While researching this article, I came across a study which sought to determine if employee turnover would cost the business money. Intuitively, I think we know the answer to this, but it always helps when we can put the numbers into perspective. In this study, the team analysed the profitability of 262 Burger King locations.

They wanted to know how and by how much the turnover of employees and management affected efficiency, and, in turn, profitability. The researchers measured the length of wait-times and amount of food waste in correlation to employee turnover.

We can break down the cost of employee turnover into two large segments; management and employee. Each has its own turnover costs.

Employee Turnover

Among the things the researchers established was the idea that the experienced employee was significantly faster than a new employee. Not only were they trained in the processes of the restaurant, but they had developed the tacit understandings which were not found in any training manual. They were able to anticipate changes in work flow and adjust accordingly.

How does your company work? Are there ebbs and flows to the daily cycle? Are there seasonal changes which require your people to compensate? The folks who have been there for a while know this intuitively and will anticipate the changes.

This is one of those things we can easily relate to most any other business or operation. Maybe it’s knowing when to order a new part for a vital piece of machinery based on how it sounds. Or perhaps it’s predicting a ramp-up for temporary employees to deal with a supply recall for your supplier’s products.

This reminds me of a story many years ago, to which I am unable to recall the source or even its veracity. I was learning about nuclear power production. The tour guide explained how the people monitoring the power needs would watch big league games, like the Super Bowl or possibly the World Cup. When a commercial break was about to start or half time was beginning, they would increase power production. Their reason? Everybody was going into the kitchen to open the fridge for a beer or turn on the stove to make snacks, and that caused a larger draw on the power supply.

Each industry and company have their own quirks to maintaining efficient product and service flow. It’s this kind of implicit, learned experience that takes years to replace. The dollars and cents are nebulous without a solid understanding of your business, but your people will know it intuitively.

Management Turnover

But losing a manager has its own costs. Some are obvious, like the normal transition of a new employee. Others, however, are less so. Like loyalty.

Consider the employee-manager relationships. Often, it’s that person in the mentorship and authoritative role who makes sure your employees are working at their best. People are loyal to people first and the company second.

People don’t just quit, they more often leave their manager. But I maintain the obverse is also true. People don’t just work, they work for their manager. If the manager to whom they are loyal leaves, how strong is the remaining tie to the company? According to that study, employees are indeed more likely to leave following a manager exit.

Here it is then, a two-fold mess when you lose your management. Consider that cost of integration. That person needs to take the time to learn the operations of your company. Most of this is a rehash of what any other employee goes through; the ebb and flow and the policies and procedures of the company.

But not only that, the new person has to integrate with the people and the culture that is already there. The new manager needs to build a relationship with the employees. People have to start over with the understanding of expectations and ideology. This will take time, of course it will, but it’s going to cause a dip in productivity and profitability.

Doing the math

The next time you notice a person might be on their way out the door, do a little math to determine just how much that departure is going to cost your company. I’ll bet you a morning coffee it’s nowhere near as high as providing that ongoing training and job growth.

Tell me what you think. What’s your employee turnover story? Does this ring true for you or have you found some other formula that works?

Paul Bergsma