If I asked you whether employee turnover was good or bad you would already know that it’s bad. But there’s a deeper question – how bad is it? That’s the question you need to answer if you’re going to launch a meaningful response to addressing employee turnover. When you understand what the cost is then you can address the answer of how much should be spent to reduce turnover.
It’s important to be clear about what you’re measuring upfront. Some turnover will be unavoidable, trying to eliminate it completely is unrealistic, not to mention costly. Think of this analysis as more of a break-even point. You’ll want to invest in ideas that reduce turnover to the point where those investments are equal to the costs of turning over employees. This may or may not reduce overall costs, but it will improve employee morale, productivity, and help operations flow smoother so people can focus on customers instead of the business itself.
Human Resource Costs
The time it takes to hire a person varies greatly, with many positions averaging 20 days or more to hire a qualified candidate. That’s a lot of time HR is spending creating and posting jobs, filtering applications, arranging interviews, extending offers, negotiating offers, and then processing new hire paperwork. Even for positions that turnover more often, a significant amount of time is spent on purely hiring activities. According to a 2016 SHRM survey, the average cost-per-hire was $4,129. That’s a significant cost for an employee that hasn’t even worked a day.
When an employee leaves your dealership so does their knowledge. Even if you hire somebody who has the same skill set as the previous employee, integrating that knowledge with your dealership takes time and energy. Onboarding costs, combined with the inevitable errors and customer service issues created by new employees, can be significant. While it’s difficult to put a dollar figure to the cost of these losses, studies have shown that an average employee costs $15,000 to replace. If we assume that about $4,000 of that is related to HR costs, these indirect costs add up to $11,000. And, it’s not hard to imagine those costs being significantly higher depending on how good the onboarding process is and how efficiently the dealership can move them from new hire to fully productive.
Employee turnover can be a self-feeding beast. When an employee leaves your workforce, other employees will ask themselves – why? If other employees believe that people are moving on to bigger and better things outside your organization, that’s obviously a bad thing. This overall cultural impact can have further detrimental effects on productivity, retention, and employee morale.
Putting it Together
So what does all this mean? Let’s assume that your team does an analysis and comes up with a cost per employee of $15,000, as other studies have shown. If you’re turning over 10 employees per year that’s a total turnover cost of $150,000. This gives you some data points that you can begin to build an employee retention program around. For example, If you invest $25,000 into an employee retention program and that reduces your turnover to 7 employees per year, you just saved $45,000 in turnover costs – that’s a $20,000 net cost savings on employee turnover. You may find that your turnover costs are more or less than the average, but knowing that number is important not only for improving the morale of your employees but it’s good for your bottom line too.
Build your retention by starting with exit interviews of employees leaving – they’ll give you better feedback on why they’re really leaving than employees that still rely on your paychecks. Studies have shown that common reasons are career development opportunities, work-life balance, manager’s behavior, and well-being. Many of those are concerns can be addressed at little to no cost! So do the analysis, figure out your costs, and deploy programs that will not only improve the culture, but will drive profitability for your dealership as well.