Cost of Turnover
The cost of turnover can vary widely depending on factors such as the industry, role, and level of the departing employee. However, general research and industry estimates provide the following averages:
Direct Costs
Recruitment Costs: Advertising, hiring, and recruiting fees for filling the vacant position.
Average: 20-30% of an employee’s annual salary for entry-level roles.
Higher for specialized or executive roles: 50-200% of annual salary.
Training Costs: Resources needed to onboard and train new hires.
Example: Training a new hire may cost 16-20% of their annual salary.
Severance or Exit Costs: Severance packages, unemployment benefits, and the time spent on exit interviews.
Indirect Costs
Lost Productivity: New hires typically take 6-12 months to reach full productivity, resulting in:
50-75% productivity for the first few months.
Ongoing productivity losses due to team disruption.
Lost Institutional Knowledge: Departing employees take experience and internal knowledge with them, which can hinder team efficiency and decision-making.
Impact on Morale: High turnover can demotivate remaining employees, potentially causing a ripple effect of further resignations.
Customer Impact: If customer-facing roles experience high turnover, it can lead to inconsistent service, damaging relationships and trust.
Specific Estimates
Entry-Level Positions: Replacement costs are typically 30-50% of the annual salary.
Example: For a $40,000 role, turnover costs range from $12,000 to $20,000.
Mid-Level Positions: Turnover costs are approximately 100-150% of the annual salary.
Example: For a $70,000 role, costs range from $70,000 to $105,000.
High-Level or Executive Positions: Costs can soar to 200-400% of the annual salary.
Example: For a $150,000 executive, costs may exceed $300,000 to $600,000.
Industry Variations
Healthcare: Average turnover costs per nurse are estimated at $40,000 to $60,000 due to specialized skills and critical roles.
Retail and Hospitality: Lower salaries but higher frequency of turnover, with typical replacement costs 16-20% of annual salary.
Tech and Engineering: High demand and specialized roles mean costs can reach 150-200% of salary.
Reducing Turnover Costs
Organizations can mitigate turnover costs by:
Investing in employee engagement and retention strategies.
Offering competitive pay and benefits.
Creating career development opportunities.
Ensuring effective leadership and management.
Understanding the financial impact of turnover underscores the importance of building a strong organizational culture and retention plan.