How to think about the cost of employee turnover

How to think about the cost of employee turnover

It’s time to start thinking critically about how to increase employee retention.

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All Resources How to think about the cost of employee turnover

To help you quantify this, we’ve put together a simple formula: your company’s cost of employee turnover is equal to the number of regrettable departures times the average cost of those departures.

The number of regrettable departures will simply equal your number of employees times your annual turnover percentage.

While we can’t capture every single expense, or even some of the big intangible costs like impact on employee morale, we can get a good sense by analyzing four major buckets:

  • Cost of hiring
  • Cost of onboarding and training
  • Cost of learning and development
  • Cost of time with unfilled role

So we can now describe your overall annual cost of turnover to be:

Annual Cost of Turnover

As an example, if you are a 150 person company with 11% annual turnover, and you spend $25k on per person on hiring, $10k on each of turnover and development, and lose $50k of productivity opportunity cost on average when refilling a role, then your annual cost of turnover would be about $1.57 million.

Reducing this by just 20%, for example, would immediately yield over $300k in value. And that says nothing of the emotional headache and cultural drain felt from losing great people.