How to Calculate Turnover Costs for One High Turnover Position

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Each high turnover position comes with a very specific cost when that turnover actually occurs. Calculate turnover costs for one high turnover position with help from an accomplished attorney, author and speaker in this free video clip.

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Video Transcript

Welcome, this is HR That Works president Don Phin, and today I'm going to help answer the question, how do you really calculate the cost of a high turnover position? And I'm a good person to answer that, because one thing I did for five years is I ran a senior HR group, very high-end HR executives. We met every month and we tackled issues just like this. And one of the things we did, we put together a turnover costs calculator. So, we kept putting all these inputs into what the possible variables are. And there's two sides to the turnover question: One is the hard costs. One is the soft costs. When you think about the hard costs, it's like, I have to run the ad again. I've got to do the Monster placement again. I have to interview again. I have to pay a referral bonus again. I have to relocate them, all sorts of things. I have to go to the job fair. All sorts of those things are hard costs. You can just look at what you've done with the last few employees and be able to calculate what those hard costs are. Now, the harder thing to wrap your arms around is the soft costs. So, for example, there's two sides of it. On a high turnover position, if you are letting good people go, then the costs are going to be enormous. If you're keeping poor people on the bus, the costs are going to be enormous. So, Zappos--we're all familiar with Zappos--their CEO decided that after a five week training program, their going to offer their employees $3,000 to quit. Imagine that. Three grand to quit. He knows that if a person is working for me with only one foot in, I'm going to lose more than that three grand over a year. So, I might as well, right now, let him know, are you going to stay here, or you want to leave? and I bribe him with three grand. I think that's smart thinking. The other side of it is losing somebody that if they quit, you'd be upset because they're actually producing. Now, those people are giving you an ROI above and beyond everybody else in the organization. And, you know, what's their productivity? What's the lifetime value of that employee? What if you had kept them for another three years? How much more money would they have made you? So, one thing you want to think of about turnover costs is not the immediate costs, but the lifetime costs of losing an employee like that. And, one of the challenges is, turnover is contagious. Somebody leaves, they take their friend with them. You lose a project manager, they take the whole project team with them. They go on social media and they bad mouth your company. So, there's a lot of costs and might even be a cost of a lawsuit, or something like that. All the unemployment claims, things like that. So, when we do this analysis, the turnover costs at a $50,000 employee is roughly $50,000. So, you can think one to one at $50,000. If somebody costs more than $50,000, it's greater than one to one. Same thing if they cost less than $50,000, less than one to one. And you can pretty much figure on the hard costs and the soft costs being roughly the same, unless some crazy thing happens, like they take the whole team or they sue you. So, I hope that answered the question, and you really want to think like a marketer, what do I have to spend to keep these people? What's the ROI on the lifetime value of that employee? I hoped that helped answer the question. Take care.

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