Introduction:  

The Great Resignation, the Big Quit, or the Great Reshuffle (or whatever you want to call it) has been affecting employers and their companies since early 2021. The abridged version, we are currently seeing a constant economic trend of employees leaving in mass. The reason behind these moves? Many are leaving in the hopes of finding a more fulfilling job than their current one because of dissatisfaction with wage stagnation, lack of opportunities for advancement, long-lasting overall job dissatisfaction, and high rates of burnout.  

While we are preaching to the choir a bit here, we will say it again, employee turnover has had a significant impact on companies struggling with keeping employees for more than a couple of years. Despite this, leadership can be a hard sell on why to invest in keeping their people; our intention with this article is to bring to light just how expensive it is to lose an employee (and to give you the concrete tools to demonstrate this to organizational leadership).

How Bad is it? Putting the Great Resignation in Numbers:

• In total, 75.3 million workers were hired last year, while 68.9 million quit, were laid off or discharged
• According to the Labor Department’s latest Job Openings and Labor Turnover report, closing out a record-shattering year when roughly 47.4 million people voluntarily left their jobs for better work during the pandemic and Great Resignation

Okay we get it; people are leaving their jobs leading to employee retention rates at all-time lows... what’s new and how does this affect me? Have you ever sat down and concretely crunched the numbers on how much it costs your organization to lose an employee and the tangible and intangible effects it has on a company? Let’s talk about them...

Broad Statistics About the Cost of Turnover:

• Losing an employee can cost a company 1.5-2 times the employee’s salary
• For hourly workers, it costs an average of $1,500 per employee
• For technical positions, the cost jumps to 100-150 percent of salary
• At the high end, C-suite turnover can cost 213 percent of salary

How Does Losing People Cost a Company?

The ways that losing people at an organization can be broken down into a few buckets, we will provide an example on how to calculate one (directly missed revenue) in this article for you. The others to keep in consideration include:

Tangible Costs

• Directly missed or delayed revenue
• The risk of losing long-standard customers when customer-facing colleagues leave
• Ad spending for newly open position(s)
• Extra-time commitment of training new employees
• Onboarding/orientation costs

Indirect Costs

• Knowledge and experience loss
• Employee burnout
• Declining employee moral
• Productivity loss  

Number 1 Pain Point…Is it Worth the Cost to Fix it?

We have talked to several HR professionals and have been discovering the same pain points across the board. The number one pain point right now that we have heard consistently is regarding employee retention rate. Most of their employees have been leaving their current jobs for a better paying and more fulfilling job – but a lot of those same HR professionals have reported not feeling they have a real voice at the table when trying to address this issue.

So, how can you effectively convince organizational leadership that it will be worth it to spend that extra money to better retain employees? Tell them the actual cost of losing people! We have provided a step-by-step example of the actual cost of losing an employee to give you the tools to do your own calculations, we hope you find it insightful.

Example of Lost Revenue

Example Assumptions (these originally come from an external source here):

1. XYZ Tech has just lost a top performing software developer who earns $130,000 annually and XYZ Tech predicts the time-to-fill will be 65 days  
2. XYZ Tech has 125 employees and receives $14 million in revenue
3. The average working days per year is 260 days

The Costs:

Step 1: First starting out, we must understand how much revenue one employee brings into the company. In this example, we see that the average employee revenue for XYZ Tech is $430.77 per day.

How did we get this number?

• $14,000,000 in revenue/125 employees = $112,000 revenue per year for one employee
• $112,000/260 working days = $430.77 per day
• OR again, this equation looks like this --> (annual organizational revenue/# of employees)/average # of working days a year = average employee revenue per day

Step 2: Use a predetermined multiplier which helps quantify lost revenue based on the person’s role level at the company...

Multiple the average daily revenue by:

• 1x for vacant entry-level role (coordinator or junior level contributor)
• 2x for high impact roles like salesperson, tech employees, and product developers
• 3x for executive and leaderships roles

In this case we have a top performing software developer so we will multiply their average daily revenue by three: $430.77 x 3 = $1,292.31 per day

Step 3:  Next, we must understand the revenue that will be lost when the employee leaves. Since in our example we assume it will take 65 days to fill the position, this looks like: $1,292.31 x 65 days = $84,000 in lost revenue

Payroll and Benefits Savings:

However, when an employee is lost, this means that your company will also save some money (because you are not paying or providing benefits to them after they are gone). Will it be enough to cover the cost of $84,000 in lost revenue?  

Step 1: We have to find out how much the company is spending on benefits per employee (you can put in your own percentage if you have a more exact amount on hand...). According to the Bureau of Labor Statistics, benefits typically cost 31.4% of annual salary: $130,000 (employee salary) x (.314) = $40,820

Step 2: We next must add the cost of benefits and the employee’s salary together to get the total cost of this one employee: $130,000 + $40,820 = $170,820 of total annual cost for this example employee

Step 3: We now must find how much this equals to per day and multiply that by the 65 days it takes to fill this spot, leading us to find in our example that the company saved $42,705

How did we get this?

• $170,820 of total annual cost/260 (working days) = $657 cost per day
• $657 cost per day x 65 (days to fill) = $42,705 saved  

Final Cost Calculation:

And finally, we see that the loss of the example employee costs XYZ Tech $41,295 in only 65 days (about 2 months)! 😲

• $42,705 (Money Saved) - $84,000 (Lost Revenue) = -$41,295 lost

This is the minimum tangible loss of revenue for the company, and again, this does not even account for project delays, declining employee morale, loss of productivity, and employee burnout due to increased workloads.

Summary and Solution:

Employee turnover costs companies millions every single year. And it is far more of an issue than just a massive headache and added stress for HR when an employee leaves and the process of advertising for the job, onboarding, and training starts again. So how do you fix this problem? First starting off we see that, “47% of active job seeker cite company culture as the primary reason they left their employment.” ~Builtin

A few ways to tackle this issue is by focusing on:

• Alignment - Take a deep look at your company culture, mission, and values and see if they are connecting with your employees. Are you confident that if asked about your mission and values, every single employee will give the exact same answer of what they are? If not, there could be some alignment issues which often will eventually lead to employee retention.  
• Employee Engagement – If you note a consistent lack of enthusiasm and commitment to work across your organization, this can be a telltale sign that employee engagement is down. (for more on engagement, check out our posts What is Employee Engagement & How to Improve It and 5 New Ideas to Booster Employee Engagement)
• Recognition - Do your employees feel heard? How are you measuring success and making sure employees are recognized for their hard work? What are you doing to make sure your employees are engaged and satisfied with their work? People want to know the value they bring is being seen and understood, consider ways you can increase this for your organization. One way you can do this is through an effective performance management process (learn more here).
• Company Culture - Since this is one of the key cited reasons for leaving, it should be one to focus on improving. However, this is a complex topic. We didn’t think we could fully tackle it in just one bullet so we wrote an entire blog post solely dedicated to providing an example on this important topic here)

All these suggestions are important considerations and possible causes if you are seeing a low employee retention rate at your organization. Use the equation we provided in our example to crunch your own numbers for concrete examples you can bring to those in charge of your organization to justify why spending on company culture really does matter and will give them a good return on even a small investment in these areas... Stay tuned and read more in our blog about innovative ways that iAlign can help reduce attrition at your organization today!

‍