The True Cost of High Employee Turnover

When it comes to business expenses, you probably think about things like payroll, benefits, office space, etc. But have you considered how much employee turnover can cost? High employee turnover can harm your profits in multiple ways, even though many people view it as a normal aspect of business operations. Here’s how.

Recruitment Costs

We’ll start with the obvious – recruitment. When an employee leaves, it triggers a recruitment process to find their replacement. This process includes job postings, screening resumes, conducting interviews, and onboarding the new hire.

These activities demand time, effort, and resources. Moreover, if your organization relies on recruitment agencies or headhunters to find candidates, you’ll incur additional fees. All these recruitment costs can add up quickly, impacting your budget significantly.

Training and Onboarding

The other obvious expense is training. This includes both training sessions and mentoring by colleagues and supervisors for the new hire. High turnover means you’re frequently investing in training and onboarding, diverting resources away from other critical business activities. It also takes time for new employees to reach their full productivity potential, which can result in a temporary dip in overall team efficiency.

Lost Productivity

When an employee leaves, there’s a period of reduced productivity within the team. When an employee leaves, it can disrupt work and cause delays. This is especially true if the employee was responsible for important tasks or projects.

But it’s not just the lost employee’s productivity worth considering. The remaining employees must handle the workload of the person who left until we hire a new employee. As a result, they have less time to complete their own tasks.

After hiring someone, the team needs to train them and support them until they become fully productive. The productivity across the team therefore may drop for a while, and not just while the position remains unfilled. 

Legal and Compliance Costs

Employee turnover can also come with legal and compliance costs. For example, if a departing employee files a wrongful termination or discrimination claim, your organization may need to invest time and resources in legal proceedings. 

Impact on Company Culture

High turnover rates can harm company culture in a myriad of ways. Constant departures can create a sense of instability and insecurity among remaining employees.

They may question the company’s commitment to its workforce and their future with the organization. Beyond negatively impacting employees, this also has a real cost to the business’ bottom line. This sense of instability can negatively impact innovation, which often thrives in stable, collaborative environments where employees feel secure and valued.

The additional workload remaining employees must take on every time an employee leaves may also negatively impact company culture. With an additional workload, remaining employees may be more likely to face burnout, which could lead to decreased productivity or even additional turnover.

The team may encounter particular problems when they do not distribute the additional workload evenly, or when they perceive it as unevenly distributed. Employees may become resentful of management, their coworkers, and the additional work. Again, creating the potential for burnout, lost productivity, and even additional turnover. 

Customer Impact

So far, we’ve focused on the costs of employee turnover within the business, but high employee turnover can also have a direct impact on your customers. Frequent changes in customer-facing roles can lead to inconsistencies in service quality and customer dissatisfaction. Even if the person leaving doesn’t interact with customers, the team’s productivity loss can still affect the customer’s experience negatively. This can make the customer’s experience less efficient and productive.

Loyal customers may become frustrated and take their business elsewhere, resulting in lost revenue. The impact to customers is especially costly if your organization relies on a specialized workforce or has long project timelines, since high turnover can disrupt project delivery.

Opportunity Costs

Finally, perhaps the most underrated yet highest cost of high employee turnover is the opportunity cost. The resources spent on recruitment, onboarding, and training could have been invested in other areas of the business, such as research and development, marketing, or customer acquisition. 

The Takeaway 

The true cost of high employee turnover extends far beyond the surface-level expenses of recruitment and training. It affects productivity, company culture, customer satisfaction, and even your organization’s long-term viability. Recognizing and addressing the root causes of turnover is not only a financial imperative but also essential for building a thriving and sustainable business.