When a Bad Hire Costs More Than an Empty Chair

It’s no secret that employee turnover is expensive. Not only do companies lose out on the investment they put into the employees who are lost (from hiring to training and building up the responsibilities individual employees can be tasked with), they also have to invest in the process all over again with someone new.

That means recruiting, screening, interviewing, and onboarding—a process that runs an average for $4,129 per employee, according to the Society for Human Resources Management (SHRM). 

Remember: That’s just the hiring part of the process, without factoring in the lost investment or the training that will go into the new hire. 

Estimates surrounding the true cost of attrition are all over the map, with projections ranging from 16 percent of an employee’s annual salary (AmericanProgress.org) to double that annual salary (Gallup). There’s a reason for this wide variation in supposed costs: the true cost of attrition ultimate comes down to the role being filled and the company filling it.  

These Numbers Are Unique

The price of employee turnover can be impacted by a variety of factors. How long did the employee work for your organization? How much was invested in preparing them for their role? What kind of training did they receive? Was any of their education reimbursed? How difficult will the position to be to fill? How valuable was the employee’s role to your company’s overall operations? How will their loss impact company culture? 

The truth is, there is no one set cost of attrition. Not even amongst similar roles within the same company. But there are formulas that can be used to help you estimate the value of individual employees—and the cost of losing them.

Why it Matters

While most companies rely on industry averages for determining the cost of attrition (or worse, don’t bother to consider these costs at all), there are benefits to having clarity regarding the costs of employee turnover. 

First and foremost, understanding those numbers can help a company to evaluate the cost effectiveness of their recruiting measures. Is your recruitment software saving you money by helping you to locate the best possible hires the first time around? Or do you have a hiring manager with a high rate of early turnover? 

By understanding the attrition costs for individual employees, you can quantify the value of your recruiting practices. 

Calculating these costs also has a way of helping executives recognize the importance of company culture and employee retention. When attrition has an accurate dollar sign attached to it, that number becomes a lot harder to ignore. 

The Society of Workforce Planning Professionals (SWPP) has a real life example of how underestimated the cost of attrition typically is—and why figuring out the hard numbers is important. They conclude that the only way a company executive can genuinely tackle attrition is by first being able to define and quantify it. 

That can’t be done without proper calculations. 

So What’s Your Cost? 

As we’ve already mentioned, the true cost of employee turnover varies by employee and role. There are several different numbers to consider when calculating that final cost. 

SHRM provides a turnover cost calculation spreadsheet that can be used to place a price tag on individual roles, walking companies through which numbers they need to consider and why. This spreadsheet is available for members only.

If you don’t have a SHRM membership, The Predictive Index breaks down 5 cost calculations that can be used to find the numbers you’re looking for. Using these calculations, you can create your own spreadsheet and begin plugging in numbers for specific roles within your company. 

Those dollar signs can prove invaluable when it comes to formulating a plan for reducing employee turnover. A plan that hopefully starts at the recruitment level, with software that can help to identify ideal employee matches quicker (and with less bias) than the human eye ever could.  

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