With the Great Resignation still looming, and now “silent quitting” picking up steam, it is critical that employers not lose sight of holding onto their best talent and come to terms with the real cost of losing them. Recently we examined what turnover may be costing your company in tangible forms such as compensation packages, time to fill vacancies, and onboarding. However, there are also hidden costs to turnover. These drivers can be exponential and can have lasting effects long after your positions have been filled.
What are the indirect costs that impact your profitability when an employee resigns? Your indirect costs are the most difficult part of turnover cost to calculate, but arguably the most critical. Indirect costs include loss of company knowledge and best practices, relationships with vendors and customers (and the resulting impact on customer retention), intellectual property risk, company reputation (have you read your Glassdoor ratings recently?), and disengagement of the team members who remain.
Because these costs can be so difficult to quantify, here is a further breakdown of five indirect cost impacts to consider:
- Loss of company knowledge and best practices. The longer someone was in a role, the more likely it is that there are processes and procedures they did automatically without documenting. Troubleshooting and recreating these processes will take time and can be a frustrating process for the incumbent.
- Relationships with vendors and customers. The impact of a departing employee on external relationships can be costly. Do you have vendor contracts with favorable terms or pricing because of the relationship they had with your former employee? Will your customers follow that former employee to their new employer? Will your company’s viability come into question if clients are constantly being introduced to new team members servicing them?
- Intellectual property risk. It is standard practice for employers to require employees to sign non-compete/non-disclosure documents upon commencement of employment. The goal is to prevent them from taking trade secrets to their next employer, lowering the risk of theft of patents, trademarks, trade secrets, and copyrights. While overt theft may be rare, it is not uncommon for an employee to take best practices with them to their next employer, who may be your direct competitor.
- Company reputation. If you do not have a defined process for reviewing and responding to Glassdoor reviews, I would strongly suggest you put that at the top of your priority list. While most companies can avoid the overwhelming “bad press” about their culture and employment practices that companies like Uber and Amazon have been plagued with, your reputation can take a hit from just a handful of negative Glassdoor reviews. This is especially critical in a tight labor market when employees have their choice of companies. Many prospective candidates use sites like Glassdoor as the first stop in their decision-making process, before their resume ever hits your desk. If you have low application rates, check your Glassdoor rating.
- Disengagement of team members who remain. Turnover may have the greatest impact on the employees who remain. They have lost a teammate – potentially someone they considered a friend – and they now have an outside view of other opportunities. Plus, they are often expected to absorb the work that remains. All these factors can lead to disengagement. According to a recent Gallup poll, 15 percent of American workers are actively disengaged (with only 36 percent considered actively engaged). Research conducted by McLean & Company found that actively disengaged employees can cost their employer 34 percent of their salary annually. And based on Gallup research, an employee who is simply “not engaged” can still cost their employer 18 percent of their salary. Higher absenteeism, lower productivity, and lower profitability all come into play when calculating the cost of employees who are not engaged.
This can feel like an overwhelming number of factors to consider when trying to determine what seems like should be a straightforward calculation. However, you can use our simple turnover calculator as your starting point to evaluate what your turnover is really costing your company. Contact Bobbi Kelly, Director-in-Charge of Kreischer Miller’s Talent Advisory practice, at Email for a conversation about how we can help reduce your turnover costs and make an investment in your employees.
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