Costs of Turnover

Turnover Steals More Profits than Fraud and Robbery Combined

An Excerpt from: Hire Hotdogs Fire Baloney by Don Paullin

Paullin’s Point—Managers who can state the expense of turnover are likely to manage it. Managers who don’t know their turnover cannot manage it.

Robbing Company Profits without Guns
Fraud and bad hires lose companies big chunks of money that are unseen, but when exposed, the naked figures are a devastating surprise. Fraud gets all the headlines, while bad hires and turnover are more prevalent and damaging to companies’ and managers’ careers, but far too often, go unnoticed.

Are Your Bad Hires and Turnover Stealing Profits?
Chances are your company has not calculated the costs of a bad hire or turnover and the impact on the bottom line. CEO’s, CFO’s, and managers who have bottom-line accountability and know the approximate dollar amount of turnover are likely to manage these costs and improve profits. Exposing the naked figures caused by bad hires and turnover will boost profits and make you a hero. Left unexposed, they are profit robbers.

Paullin’s Point—Visible Turnover Costs + Hidden Turnover Costs = The Naked Turnover Costs of Bad Hires.

Visible Costs:
Cost of hiring terminated employee $………………………
Cost of training terminated employee $………………………
Salary wasted on days, weeks, or months of terminated employee’s
negative productivity $....................
Management hours spent on termination costs $…………….
Administrative hours spent on termination costs $………….
Legal support hours spent on termination costs $……………
Cost of hiring terminated person’s replacement $………
Other Visible costs $...............................................

Hidden Costs: (When exposed these are more costly than Visible costs).
The largest amount is opportunity costs or business income lost
$……………….
Damage done by a bad hire on time and productivity $…………...
Damage done by a bad hire with internal and external customers
$…………..
Cost of infecting employee morale $ ………………
Cost for lost sales, Public Relations, etc. $..................................
Cost of the bad hire’s mistakes $.............................
Costs of wasting time in correcting errors $....................
Time it takes to get replacement up to speed $…………
Other Hidden Costs $...................

Cutting the turnover expense, just as hiring the right people, can dramatically improve the bottom line and profits.

Every Manager Must be Able to State the Expense of Turnover!
The first step is to define the turnover rate as a percentage-for example 20%. Let’s assume this 20% gives you an annual turnover rate of twenty people in the sales department. The estimated cost of landing and training a replacement, figuring visible and hidden costs, is $200,000. The cost of $200,000 X 20 sales reps is $4 million in lost profits. If your organization’s profit margin is 10% that means an additional $40 million in sales must be generated to offset this 20% turnover rate!

Manager’s Quiz:
1) What is your turnover cost by position?
2) What does your department turnover cost?
3) What is the turnover cost for the company?
4) What amount of sales are needed to cover the cost of
turnover?

The Guarantee of Morale, Profits, and Careers
Executives and companies are guaranteed profit problems if turnover expenses are left undefined and unmanaged. The first key to managing turnover costs is to make the best hires as bad hires guarantee high turnover costs. The second key is to get rid of deadwood and replace them with good hires. There is nothing more critical than these two moves to stimulate morale, profits, careers, and this will reduce turnover.

Paullin’s Point—When Visible and Hidden costs of bad hires and turnover are calculated they become Nakedly exposed expenses that can be managed. -- Don's Tip.

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