by Catherine Malchaire
“How awful! We have high turnover!”
Me: And have you ever calculated the cost of that turnover?
Client: Oh, it’s certainly got to be high.
Me: I imagine. Have you ever tried to put a concrete number on it?
Client: Erm well………… (silence)
This conversation keeps coming up, so we put together a simple formula to calculate the cost of turnover (once an engineer, always an engineer 😉). Ready for a little maths? I promise it’s simpler than it looks.
1️⃣ Let’s start with the recruitment cost
E = Number of employees in your company
T = Turnover rate (%)
C = Individual recruitment cost.
If you don’t know itexactly, consider that €5,000 per employee is a realistic average.
Total recruitment cost = E × T × C
2️⃣ Loss of productivity
We assume that during the onboarding period, an employee’s productivity is at 50%. It’s at 0% when they first arrive and at its peak by the end of onboarding.
OB = Average time for a full employee onboarding, in years. Some more skilled roles require up to 24 months before an employee is fully autonomous in their role. When in doubt, 6 months is a safe estimate.
S = Average salary in the company.
Cost of reduced productivity during onboarding = E × T × OB × S × 50%
3️⃣ Training cost
New employees do not train themselves. Colleagues need to spend time with them to pass on the knowledge and skills they’ll need. During that time, those colleagues are themselves not productive on their own tasks.
FTE = Full-time equivalent time needed to train a new employee. 0.1 is a good estimate if you have no idea.
Total training cost for the new employee = E × T × OB × FTE × S
4️⃣ Total cost of turnover
Turnover cost = total recruitment cost + productivity loss cost + training cost
We ran this calculation with the CEO of an engineering firm with 100 employees. Turnover rate: 7%.
Recruitment cost: 100 × 0.07 × 5,000 = €35,000
Productivity loss: 100 × 0.07 × 1 × 6,000 × 0.5 = €21,000
Training cost: 100 × 0.07 × 0.2 × 6,000 = €8,400
Having to replace 7 people per year costs this company €64,400 every single year. And this is a quick estimate. There are certainly other hidden costs not captured here.
We’re talking about a 100-person company here. Just imagine what this would look like for a large organisation with several thousand employees.
So, when are we going to do something about it?