Does it seem like your company is frequently losing employees and hiring new people to replace them? Are you aware of how much hiring, onboarding, and training new employees is costing you?
Turnover costs are much higher than most people realize. For example, in 2019, it costs $20,134 to replace an hourly manufacturing employee. — Mike O’Neill
You might be thinking, “wow, that’s a lot!” or “no way it costs that much!” — but are you sure? It might surprise you to learn that most companies don't know what their turnover rate is or how much turnover is costing their company.
We know how busy you are — if you don’t have time to read the full article, just skip down to the Quick Summary.
There are many costs associated with hiring a new employee that get overlooked, such as:
- The cost of advertising the vacant position.
- The cost of screening & pre-employment tests.
- The cost of onboarding & training new employees.
- The labor costs for a Manager to interview and screen candidates.
- The labor costs for a Manager to train new employees.
- The cost of overtime for others to work extra hours while the vacancy is being filled.
- The loss of profits due to productivity decreases as a new employee works to reach the desired productivity level — this can take up to one year in some cases.
- A decrease in employee morale which leads to a decrease in the quality and speed of their work.
- The labor costs for your customer service team to answer questions and solve problems for new employees.
The costs of hiring a new employee add up fast. It’s crucial that you understand what a good turnover rate is and how to calculate it to get a better understanding of how it’s affecting your bottom line.
What is a Good Turnover Rate?
Turnover varies by industry and should always be evaluated contextually. If poor performers are leaving, that could be a good thing. If you have student or intern workers, then they will leave when their studies are complete. However, if top performers are leaving, that could be a bad sign.
To give you a starting point to measure against, the U.S. Bureau of Statistics says that the average turnover in the United States is about 12% to 15% annually.
Calculate Your Rate Using the Employee Turnover Formula
Your turnover rate is calculated by dividing the number of employees that left by your average number of employees. Then you multiply that number by 100 to get the percentage.
If you’re going to reduce your turnover costs, then you need to have metrics in place to track your turnover and its associated costs. Then you can see exactly how much your company is really spending on high turnover and start tracking to see improvements.
To get you started, let us show you 7 causes of high employee turnover and give you some employee retention ideas you can take action on immediately.
Cause #1: A Lack of Constructive Communication
How your managers and employees resolve conflicts and communicate with each other has a significant impact on your company culture and employee morale.
A lack of constructive communication can lead employees to feel like their concerns aren’t being dealt with fairly. They may even begin to feel underappreciated or that their talents are being wasted by a company that doesn’t care about them.
You should train your managers and employees on constructive communication techniques to help them have more productive conversations.
Tips to Reduce Turnover:
- Talk about the problem at hand, not the person. For example, instead of saying, “You were too distracted with X to get Y completed yesterday,” say, “Y didn’t get completed yesterday.”
- Don’t focus on the why. Focus on the resolution. You can spend hours talking about who was at fault — but that’s not helpful. Instead, focus on finding a way to come together and fix the problem.
- Ignore opinions and focus on the facts.
- Practice listening to understand the other person and not to reply. Paraphrase what they say back to them to show you were listening, pause to give them chances to add more to the conversation, ask for clarification if you don’t understand something, and summarize the key points they bring up to make sure you’re both on the same page.
Cause #2: Improperly Trained Management
75% of employees who voluntarily leave jobs quit their bosses, not their jobs. (Roger Herman)
Managers play a critical role in the work environment and culture of your company. When managers have strong leadership and communication skills, they create a positive workplace that employees want to be a part of.
A Tale of Two Departments
70% turnover rate vs 0% turnover rate — time to find the cause...
Rhonda Beard, an expert team member here at Bench Builders, discovered just how much improperly trained management could affect turnover when working with a client.
Her client’s company had multiple departments, and some of the departments had a higher turnover rate than others.
In one of the departments with higher turnover, Rhonda found that the cause was related to the work environment and management style within that department. The manager was not making himself available to employees, he wasn't proactively sharing or communicating information, and he didn’t recognize employees with positive feedback.
The only time an employee heard from the manager was when they had done something wrong and were being reprimanded. Employee turnover in this department was over 70%.
In another department, a different manager was demonstrating a positive attitude and took the time to listen to and address employee concerns. This manager did little things for his employees, such as bringing them donuts, taking them to lunch, and writing them thank you cards.
He was always clear with employees on expectations and always completed detailed performance reviews with good, honest feedback. He even offered training and development opportunities for his employees.
Can you guess what the turnover rate for this department was? It was 0%. Yes, you read that right. The department with the good manager had a 0% employee turnover rate.
“A negative work environment causes employees to leave, creating high turnover, and the costs associated with turnover are significant.” — Rhonda Beard
The manager in the department with a 70% turnover rate was replaced with another employee that they promoted from within. Then, the new manager was provided with some one-on-one training and coaching.
It’s only been 6 months since the new manager took over, and he’s still receiving training, but the turnover rate for his department has already dropped.
Tips to Reduce Turnover:
Many employees crave the opportunity to improve their skills and move up in an organization. Training and developing your managers is easier, more effective, and less costly than replacing them.
When you invest in managers, they will pay it forward and do the same for their employees. When you invest in your workforce, morale and productivity will improve, and turnover will decline, reducing costs and improving your bottom line.
Cause #3: Advancement Opportunities Are Nonexistent or Not Communicated Well
- Do you offer opportunities for employees to move up within the company or receive additional training?
- Do they know about these opportunities and how to make use of them?
- Are your managers encouraging employees to take advantage of the training?
There are so many jobs available in the current labor market that employees can quickly jump ship for another employer that offers more chances to advance and receive a higher income.
“58% of workers said their companies didn't currently have enough growth opportunities for them to stay long term.” (Randstad)
Managers are quick to blame high turnover on outside sources, but often, the inability to move up in their career is a deciding factor for many employees who leave their jobs.
Tips to Reduce Turnover:
Here are some things you can do to help increase employee morale and entice your employees to stay:
- Create opportunities for advancement if you don’t have them already.
- Offer employer-paid training for other positions within your company. It is much easier and more effective to train and develop employees than to replace them.
- Implement a consistent schedule for raises.
- Provide access to higher education, such as certifications or degree programs.
- Include materials with employee welcome packets that discuss all the opportunities available.
- Have managers discuss the opportunities and ensure employees know about the information provided in the welcome packets.
Cause #4: Misalignment or Lack of Employee Benefits & Incentives
Does your company already offer benefits and incentives to the employees? Are your employees taking advantage of them?
“72% of surveyed professionals say having more work benefits would increase their job satisfaction.” (Zoro)
Offering benefits and incentives that your employees actually want is crucial. It doesn’t do them or you any good to offer programs and perks that none of your employees will ever use.
Tips to Reduce Turnover:
Offering the right perks will increase employee morale and reduce employee turnover significantly. Some ideas of benefits and incentives you can offer are:
- Paid Time Off (PTO)
- Unpaid Time Off (UTO)
- Profit-Sharing and Company Stock
- A Company Matched Retirement Savings Plan
- Training and Development Programs — as mentioned above.
- Flex and Remote Working Arrangements
- Advanced Skill Building and Mentorship Programs
- Wellness Programs
- Improving Their Work Environment
- Hosting Company Celebrations and Events
- Conducting Surveys and Brainstorming Sessions
- Opportunities to Work on Special Projects or Community Causes
Cause #5: Employees Feel Overworked
Research shows that 70% of employees feel overwhelmed with their workload. When your employees feel overwhelmed, every aspect of your business suffers, and your employee turnover rate increases as a result.
Productivity decreases, work quality suffers, growth stalls, customer service declines, and employee morale plummets, causing your business to lose money and your employees to quit and look for work elsewhere.
Train your managers to spot the warning signs so you know when your employees are starting to burnout. Some things to watch for are employees with a decline in work performance, a habit of being late or missing work, a short fuse, poor customer feedback, or employees who have been working long hours over weekends and holidays, never taking a vacation.
Listen for employees who say, “It feels like I live here,” or “I wish I could take some time off for a vacation.” If you notice these signs, you need to do some digging and get to the bottom of why they feel overworked and overwhelmed.
Tips to Reduce Turnover:
Here are some steps you can take to be proactive and prevent employee burnout:
- Conduct regular one-on-one meetings to check in with your employees and see how they’re doing.
- Conduct “stay interviews” to interact with employees on what they like about working for your company and what they’d like to see improved.
- Consider offering flex schedules where employees can work from home part of the time.
- Require your employees to use their PTO and vacation days.
- Ask employees to take exit surveys to get a better understanding of why they quit.
Cause #6: Employees Feel They Aren’t Treated Equally
Employees who feel they aren’t being treated fairly are going to be less productive and will disengage. When they find out someone else is making more than them for the same work or a manager favors one employee over another, it causes friction — and higher turnover rates.
Ask employees what’s important to them in their job and their level of satisfaction.
When you do, take action on what they tell you to show them that their thoughts, opinions, and feelings are important to you. Your managers need to anticipate feelings of inequality and take steps to prevent it when possible.
Tips to Reduce Turnover:
Here are some ways you can be proactive about feelings of inequality within your workforce:
- Take the time to chat with each of your employees about non-work related topics. When a manager only socializes with employees they personally like, it leads others to feel like they prefer those employees over them because they talk to them more.
- Implement clear policies for attendance and tardiness and stick to them. Don’t give anyone a break or cut them slack “just because.” This can quickly turn into a situation where some employees feel like the manager is playing favorites when you let one employee off the hook and then crackdown on someone else.
- Give your employees written and verbal feedback about how they’re doing. Be honest with your feedback and include some tips or advice to help them make improvements.
Cause #7: Employees Feel Undervalued and Unappreciated
30% of employees say they feel undervalued on the job, and it’s your job to make sure your employees aren’t contributing to that percentage.
How do you know when an employee is feeling undervalued or underappreciated? Look for employees who have a loss of interest in their work, are resistant to change, aren’t cooperating with managers and coworkers, or have decreased levels of productivity.
These are signs your employees may be feeling that their work isn’t being appreciated enough by coworkers, managers, or the company as a whole, and your employee turnover will increase as a result.
Tips to Reduce Turnover:
So, what can you do if you discover one or more of your employees are feeling this way? Here are some things you can try:
- Ask for their thoughts, opinions, and feelings about their work, new projects, or new company policies. This shows you value what they have to say and the contributions they make.
- Praise your employees for reaching goals or milestones. Do you have an employee or two that never reaches their goals, but they put in the maximum amount of effort anyways? Praise them for their effort instead.
- Treat your employees to a celebratory lunch when they reach a milestone as a team.
- Offer gift cards, bonuses, or other perks to top-performing employees.
- Pay attention to positive progress and say “thank you” often.
Quick Summary: The 7 Causes of High Turnover
High turnover could be costing you much more money than you realize. Familiarize yourself with 7 ways you can reduce high turnover.
- Train Constructive Communication — Train your managers and employees on constructive communication techniques such as focusing on the problem and how to solve it vs why the problem occurred and who’s fault it was.
- Invest in Management Training — An improperly trained manager can cause your turnover rate to be as high as 70% or more.
- Communicate Advancement Opportunities — Add information about any advancement opportunities to welcome packets and make sure managers encourage them to take advantage of those perks routinely.
- Communicate Aligned Benefits & Incentives — Ask your employees what kinds of incentives and benefits they would love to have and consider offering them. Also, review the incentives you offer to see if they are being used.
- Don’t Let Employees Feel Overworked — Take a hard look at how the workload is being divided amongst your employees. Train your managers to spot the warning signs of an overworked employee and ensure they take action to improve the situation.
- Train Managers how to Treat Employees Equally — Does your manager socialize with one or two employees more than the others? Have they let someone slide for being late or missing work? Situations like these might seem innocent and harmless at the time, but it can lead to feelings of inequality amongst the coworkers not receiving the extra attention or getting in trouble for the same thing you let someone else slide on.
- Make Sure Employees Feel Appreciated — Put a focus on building employee morale. Praise your employees more for their efforts and when they achieve their goals or reach milestones. Ask for their input frequently to show them you value their opinions.
Download Our Free Tactical Field Guide to Managing Humans
Are you determined to decrease employee turnover and boost employee morale? Would you like to learn how to manage your workforce efficiently and keep them feeling satisfied with their jobs and their role within your company?
Our experts have created a free guide to give you some useful tips and strategies you can implement immediately to get your high turnover rate down quickly. You’ll learn how to:
- Maximize workforce productivity
- Overcome team dysfunctions
- Learn tactics to help you resolve conflict
- Improve your personal time management
- Learn crucial communication skills
Download your copy of A Tactical Field Guide to Managing Humans today and enjoy a straight-to-the-point resource designed especially for team leaders.