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Like everything, if you don’t measure turnover, you can’t manage it and you can’t learn from it.
Turnover can be as important and actionable a metric as net cash flow or growth. Your team is your business. There is also a significant direct financial impact with turnover. Most estimates, put replacing an employee at about 150% of the employee’s salary. Seriously! Think of paying vacation time out, placing ads, extra admin costs, losing time and productivity to interview and get the new hire up to speed. There is also an increase in unemployment premiums, a risk of lawsuits, and morale issues. Double Whammy time: half of departing employees also take other employees with them. They often go to your competitors. For managerial and sales positions, the replacement figure is 200% ~ 250%. Turnover effects profitability and is super disruptive.
Calculating your turnover is easy. The Department of Labor (DOL) suggests the following formula to determine the employee turnover rate: divide the number of separations during the month by the total number of employees at mid-month. Multiply this number by 100.
Let’s say you have 42 employees, and 2 leave in October, your month turnover rate is 4.8% - (2/42)*100. You can adjust this to figure out month, yearly, voluntary, etc... Work it!
In the U.S., for the period of December 2000 to November 2008, the average monthly turnover rate was 3.3%. Keep in mind, different industries, periods in time, and calculation methods can change the rate significantly. Understand clearly how comparative rates are calculated, or just measure against yourself.
So, there is an impact financially and in productivity. I can measure it. What is there to manage and learn? To start with, are you making your hiring selections correctly? Or does a high percentage of staff leave after a few months? Can you predict the average tenure for employees? Perhaps you can see patterns in your turnover and work proactively to prevent the turnover of your best employees.
Over time, you will be able to adjust engagement and recognition programs, feedback and communication practices, hiring sources, pay and benefits, flexible work arrangements, or other procedures, and see if they impact your turnover.
What does your voluntary and involuntary rates tell you? If there is evidence you are firing absolutely no one, that could be a problem - under performing employees are extremely costly! How about turnover rate by manager? Remember, people leave their manager, not the company. Are you losing your best employees because a manager needs some training, mentoring, or to be fired? Are their certain times of the year, or in your product life cycle, that send your rate out of whack? While it’s pretty rare, a very low turnover might mean you are overpaying employees. What is your competitors turnover like?
Put your turnover rates alongside company profit, customer satisfaction, or other metrics. I dream of day where we can positively impact revenue simply by adjusting flexible work schedules. You get it. Have fun. Realize human resources, and turnover, matters and is another tool in your toolbox!
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.