The Secrets of Market-Driven Leaders A Pragmatic Approach.pdf

The Turnover Dilemma:

Keeping Employees by Fulilling Dreams

B y M a T T h E w K E l l y

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If PC’s were walking out the door with the same frequency that people are leaving

companies in the present corporate culture, how long do you think it would take us to

do something about it? We’d have an emergency meeting to discuss security issues and have a

plan in place in less than 24 hours. the cost of an employee leaving is considerably greater than the

cost of a PC and yet the turnover continues to go largely unaddressed in most companies today.

how Much Does Turnover Cost?

Anyone who tells you that they can accurately assess the total cost of turnover is lying. there are

certain hard costs that can be very accurately measured, but there are many costs that result from

turnover that are impossible to measure. For example, if you have one of your best people training

new employees four days a month, you can accurately determine the hard cost by multiplying her

daily salary by four and annualizing that cost. But it is impossible to accurately determine the overall

cost to the business because you don’t know what she would be doing if she was not training new

employees: inding new customers, expanding opportunities with existing customers, creating new

systems that increase eficiency and proitability within your company, or any number of things

that are worth a lot more to your company than four days of her salary each month. the real cost

of turnover is lost opportunity, and who can measure that?

this is a truth we should be aware of, but we shouldn’t let it stop us from trying to determine the

hard cost of turnover for our organization.

How big is the turnover problem? Huge. It’s so big that the cost of turnover is often many times

greater than the revenue most companies receive from their largest customers. take Cintas,

the uniform people, as an example. With a workforce of approximately 33,000 they had turnover

of 11,000 employees last year, or 33%, and estimate the cost of turnover to their company at 110

million dollars. each percentage of turnover is costing the organization more than 3 million dollars.

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But at least they have started to do the math; it is the irst step toward solving the problem. US Bank,

with its 50,000 employees has a company wide turnover rate of about 30%. Conservative estimates

would put their turnover costs at more than 150 million dollars.

Sooner than later, these companies and many others are going to have to start asking the question:

Is it easier to ind an extra 100 million dollars worth of business or tame turnover?

Most companies have not done the math. earlier this week I had a conference call with a prospective

client to discuss their turnover problem, and how my colleagues and I at Floyd could help them.

the company is a call center in Colorado. I began as I always do with two questions for the owner

(or CeO). What is your dream for your company? Do you know how much turnover is costing you?

In the next ten minutes I took him and his executive team down the fast and frightening path of

accessing the cost of turnover. In brief this is their situation. the call center has 160 employees,

140 on the phones and 20 in administration. Of the 140 callers 75 leave each month. that means

54% of their callers (or 47% of their entire staff) are walking from their job each and every day.

that’s a 564% annual turnover.

I paused here to ask them how they felt about their turnover level, to which one of them replied,

“We’ll its within the acceptable range for our industry.” Acceptable. I wondered whose idea of accept-

able we were using as a yardstick.

now it was time to break down some math, quick and dirty. How much was turnover costing them?

I explained that there were many aspects of that question that could not be answered, but that we

could take a look at the hard cost. First, I asked them what their annual revenue was for the last

iscal year. the answer: $3 million dollars. I then asked the owner to write down on a piece of paper

how much money he made last year from both salary and proits, before explaining that two-thirds

of potential proits are being drained by turnover. then we got started…

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Recruiting Costs: How much did you spend last year on recruiting costs?

$100,000 in salaries and $50,000 in ad placements.

Sub-total = $150,000

Training Costs:

How much did it cost you train new employees last year?

they didn’t know, so we ran through it. It takes two six-hour days to train

an employee. the employee is paid $8 per hour during training. $96 per

new employee multiplied by 900 (or 75 each month)=$86,400. Keep in mind,

this does not even take into account the hard cost of the employees who

are doing the training.

Sub-total = $236,400

Lost Business:

Due to turnover was there any business you were not able

to complete due to lack of staff? $175,000.

Sub-total = $411,400

Lost Productivity: After two-days of training, at what level are new employees operating?

I suggested a generous estimate. 70% in week one, 80% in week two,

90% in week three, and 100% in week four. Based on an hourly rate of

$11 (once new employees complete their training) and a forty-hour

workweek, I calculated the cost of lost productivity at: $132 per new

employee in week one; $88 in week two; and $44 in week three.

Annualized cost of lost productivity due to turnover = $237,600.

Sub-total = $649,000

Cost of Lost

Opportunities:

Monumental and immeasurable.

total = $649,000 + Lost Opportunity + the Aggravation.

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needless to say, it is not dificult for me to convince CeO’s and business owners that they should

take their turnover problems very seriously. For Cintas, the cost of turnover represents 37% of

annual-proits. For this call center, the hard costs represent 21.6% of gross revenue.

turnover is expensive. If you tried to get the cost of turnover approved as a voluntary expense by

boards or shareholders you would fail miserably every time. So, why do we tolerate it? Most would

say because it is unavoidable.

why Do People leave?

If you asked most consultants in the ield why employees voluntarily leave a job they would give

you some or all of the following answers…

the employee’s relationship with his/her manager is dysfunctional.

the employee does not feel appreciated and valued.

the employee does not feel that his/her talents are being utilized. i.e. they feel like

they have more to offer.

the employee has no way to measure his/her success or progress.

What most consultants will not tell you is that while these are all valid reasons, they are secondary

to what is at the core of the turnover issue. the #1 reason people leave a job is not because they

have a dysfunctional relationship with their manager or because they don’t feel appreciated. they

leave because they cannot see the connection between the work they are doing today and the future

they imagine for themselves. When employees believe that what they are doing is helping them to

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