After speaking with hundreds of professionals in training and development, talent, and HR, we’ve seen that one of your top priorities is reducing employee turnover!
Is this also your priority?
We’ve heard standout phrases like:
- “A lot of people are leaving the company.”
- “We’ve had 12 people leave in 3 months.”
- “After a year, people are leaving us.”
- “We have a 35% turnover rate.”
Do any of these sound familiar?
All these statements obviously illustrate a complex situation that significantly slows down the cruise speed of the ship that is the company.
Obviously, we all know that “turnover” or the voluntary departure of people from the company has a significant impact.
But do you know how much turnover costs your company?
To start, let’s understand which areas affect turnover, then how to calculate turnover, and finally, what the costs of turnover in my company are.
What Are the Areas That Comprise the Cost of Turnover?
- Payroll:
- Amounts associated with final payrolls due to the loss of talent.
- Hiring:
- Recruiting and attracting new talent costs money. Whether it’s using a headhunting company, a budget for LinkedIn Ads, or the hours dedicated by your talent or recruiting team.
- Training:
- All the time, money, and efforts dedicated to the training and onboarding of new hires, both on their part and from their direct manager and HR or talent personnel involved.
- Productivity:
- There are clear consequences on performance and effectiveness in teams where turnover happens.
- Opportunities:
- Loss of new or existing business opportunities.
How to Calculate the Cost of Turnover?
Employee turnover is the percentage of people who leave an organization over a given period.
To perform the calculation, we first need to gather some important data:
a) The time period you want to analyze (it can be a year, six months, or any number of months you choose).
b) The number of employees who have left the company during that time.
c) The number of people who were part of your team at the beginning of the period you are analyzing.
d) The number of people who are still with the company at the end of the same period.
Once you have this data, here’s the magical formula to calculate employee turnover:
Ready for the mathematical magic trick? 🎩✨
(R) = (S / ((I + F) / 2)) * 100
- R is the turnover rate.
- S is the number of people who left.
- I is the number of people at the beginning.
- F is the number of people at the end.
Let me illustrate with an example: Suppose over six months, you started with 250 employees and ended with 210. If 40 people left during that time, then:
R = (40 / ((250 + 210) / 2)) * 100
R = (40 / 230) * 100
R = 17.39%
Ta-da! In this hypothetical case, our turnover rate is 17.39% over those six months.
Is My Turnover Rate Normal?
To give you an idea of turnover levels and help you understand:
- In Spain, turnover is between 28% and 35% in IT and software sectors, and 12-15% in other sectors.
- In Mexico, it is estimated to be around 35% in IT and software sectors, while other sectors are around 16.75%, making it the highest in LATAM.
What Are the Costs of Employee Turnover?
Now you know the factors that add up to the cost of turnover, the percentage in your company, and whether it is normal compared to the market.
There are many statistics on what it costs when a person leaves the company relative to their salary.
According to the Huffington Post, it can cost from 1.5 to 2 times the person’s salary, up to 213% of the annual salary.
As illustrated in the graph, it is quite logical to establish that the cost increases according to the person’s lifetime process in the company:
- New employee: 30-50% of the annual salary
- Service or production area: 40-70% of the annual salary
- Administrative: 50-80% of the annual salary
- Skilled in their tasks: 75-100% of the annual salary
- Professional: 75-125% of the annual salary
- Highly specialized: 100-150% of the annual salary
- Supervisor: 100-150% of the annual salary
How to Calculate the Costs of Employee Turnover?
To use an illustrative and completely real example, we will detail the study we conducted for a well-known tech company.
These were the results of our analysis:
With an average salary of 30,000, a turnover rate of 25%, and 400 employees, setting a very modest turnover cost of 35% of the salary, here is the cost:
30,000 x 400 x 25% x 35% = 1,050,000
More than a million, and that’s without counting company costs, which would amount to 1,375,000.
Draw your own conclusions 😇
I’ll leave you with a quote from the great Richard Branson: “Train people well enough so they can leave. Treat them well enough so they don’t want to.”
Which, translated, means something like: “Train people well enough so they can leave. Treat them well enough so they don’t want to.”
