Q.  I just had a sales person come in to my office and showed me how much money I could save if I could reduce my employee turnover.  It looks and sounds good, almost to good.  I am sure I could save a buck or two but 10s of thousands of dollars?  Is their any truth to what I am being told?

A. To fully understand your turn cost of employee turn over you must do a little self-analysis. The following is a checklist of items to include when calculating the cost of turnover in any organization. To determine the costs, have the hourly and weekly cost of fully loaded payroll costs (i.e. salary plus benefits) of the vacant position, the management staff, the recruitment staff and others as outlined below.

It should be noted that the costs of time and lost productivity are no less important or real than the costs associated with paying cash to vendors for services such as advertising or temporary staff. These are all very real costs to the employer.

Please go through the following lists and calculate the following:

Costs Due to a Person Leaving

1. 1.The cost of the person(s) who fills in while the position is vacant.
   

2. 2.The cost of lost productivity at a minimum of 50% of the person's compensation and benefits cost for each week the position is vacant, even if there are people performing the work.
   

3. 3.The cost of conducting an exit interview to include the time of the person conducting the interview, the time of the person leaving, the administrative costs of stopping payroll, benefit deductions, benefit enrollments, COBRA notification and administration, and the cost of the various forms needed to process a resigning employee.
   

4. 4.The cost of uncoupled training your company has invested in this employee who is leaving. Include internal training, external programs and external academic education. Include licenses or certifications the company has helped the employee obtain to do their job effectively.
   

5. 5.The impact on departmental productivity because the person is leaving. Who will pick up the work, whose work will suffer, what departmental deadlines will not be met or delivered late.
   

6. 6.The cost of severance and benefits continuation provided to employees who are leaving that are eligible for coverage under these programs.
   

7. 7.Calculate the cost impact of unemployment insurance premiums as well as the time spent to prepare for an unemployment hearing, or the cost paid to a third party to handle the unemployment claim process on your behalf.
   

8. 8.Calculate the cost of loosing customers that the employee is going to take with them, or the amount it will cost you to retain the customers of the sales person, or customer service representative who leaves.
   

Recruitment Costs

1. ★The cost of advertisements (from a $200.00 classified to a $5,000.00 or more display advertisement); agency costs at 20 - 30% of annual compensation; employee referral costs of $500.00 - $2,000.00 or more; internet posting costs of $300.00 - $500.00 per listing.
   

2. ★The cost of the internal recruiter's time to understand the position requirements, develop and implement a sourcing strategy, review candidates backgrounds, prepare for interviews, conduct interviews, prepare candidate assessments, conduct reference checks, make the employment offer and notify unsuccessful candidates.
   

3. ★The cost of a recruiter's assistant who will spend 20 or more hours in basic level review of resumes, developing candidate interview schedules and making any travel arrangements for out of town candidates.
   

4. ★The cost of the hiring department (immediate supervisor, next level manager, peers and other people on the selection list) time to review and explain position requirements, review candidates background, conduct interviews, discuss their assessments and select a finalist.
   

5. ★The administrative cost of handling, processing and responding to the average number of resumes considered for each opening at $1.50 per resume.
   

6. ★The number of hours spent by the internal recruiter interviewing internal candidates along with the cost of those internal candidates to be away from their jobs while interviewing.
   

7. ★The cost of drug screens, educational and criminal background checks and other reference checks, especially if these tasks are outsourced.
   

8. ★The cost of the various candidate pre-employment tests to help assess a candidates' skills, abilities, aptitude, attitude, values and behaviors.
   

Training Costs

1. ★The cost of orientation in terms of the new person's salary and the cost of the person who conducts the orientation. Also include the cost of orientation materials.
   

2. ★The cost of departmental training as the actual development and delivery cost plus the cost of the salary of the new employee.
   

3. ★The cost of the person(s) who conduct the training.
   

4. ★The cost of supervisory time spent in assigning, explaining and reviewing work assignments and output. This represents lost productivity of the supervisor. Consider the amount of time spent at 4 hours per week for at least 6 weeks.
   

Lost Productivity Costs

As the new employee is learning the new job, the company policies and practices, etc. they are not fully productive. Use the following guidelines to calculate the cost of this lost productivity:

1. ★Upon completion of whatever training is provided, the employee is contributing at a 40% productivity level for the first 2 - 4 weeks. The cost therefore is 60% of the new employees full salary during that time period.
   

2. ★During weeks 5 - 12, the employee is contributing at a 65% productivity level. The cost is therefore 35% of full salary during that time period.
   

3. ★During weeks 13 - 20, the employee is contributing at an 85% productivity level. The cost is therefore 15% of full salary during that time period.
   

4. ★The cost of coworkers and supervisory lost productivity due to their time spent on bringing the new employee "up to speed."
   

5. ★The cost of mistakes the new employee makes during this honeymoon period.
   

New Hire Costs

1. ★The cost of bring the new person on board including the cost to put the person on the payroll, establish computer and security passwords and identification cards, business cards, internal and external publicity announcements, telephone hookups, cost of establishing email accounts, costs of establishing credit card accounts, or leasing other equipment such as cell phones, automobiles, pagers.
   

Lost Sales Costs

1. ★For sales staff, divide the budgeted revenue per sales territory into weekly amounts and multiply that amount for each week the territory is vacant, including training time. Also use the lost productivity calculations above to calculate the lost sales until the sales representative is fully productive.
   

2. ★For non-sales staff, calculate the revenue per employee by dividing total company revenue by the average number of employees in a given year. Whether an employee contributes directly or indirectly to the generation of revenue, their purpose is to provide some defined set of responsibilities that are necessary to the generation of revenue. Calculate the lost revenue by multiplying the number of weeks the position is vacant by the average weekly revenue per employee.
   

These calculations will easily reach 150% of the employees annual compensation figure. The cost will be significantly higher (200% to 250% of annual compensation) for managerial and sales positions. An example:  assume the average salary of employees in a company is $50,000 per year. Taking the cost of turnover at 150% of salary, the cost of turnover is then $75,000 per employee who leaves the company. For the mid-sized company of 1,000 employees who has a 10% annual rate of turnover, the annual cost of turnover is $7.5 million!

Calculating and adding all these costs, given our original example of the $50,000 person can easily reach $75,000 to replace them. As you can see, the costs and impact associated with an employee who leaves the company can be quite significant. This is not to say that all turnovers should be eliminated. However, given the high cost and impact on running a business, a well thought-out program designed to retain employees may easily pay for itself in a very short period of time.

To slow your employee turnover, I recommend using a management tool called PDPWORKS.com.

It has had great success with most every client that has used the product.

Contact Russell Disberger at info@aspenbusinessgroup.com