The true cost of staff turnover

- Another massive hidden cost that's people related is staff turnover. Most companies don't really regard this as a cost, but it really is. So if you could understand why people are leaving, and then optimize it, get people to stay for longer, then you could save a lot of money. So the first thing is Pareto analysis to find the causes. Have a list of why people leave. If you could have an exit interview, find out why they leave. And of the top 10 reasons to leave, you'll probably find that two of them will be 80% of the reasons why people are leaving. I did read somewhere that people join organizations and they leave bosses. So you might find your top two are that we don't like our boss, and we don't like the other boss, or something like that. You might find two of your bosses. But, anyway, do the Pareto analysis, find out why people are leaving. And it might be something stupid, like hassle in the carpark, or the office is too cold. Who knows what it is? But you've got to find that out, first of all. And it could be pay. It could be that they're moving to jobs that are better paid. And I really think paying enough is important. I think paying people less is a real false economy, trying to keep people's pay down. If somebody leaves, and remember if you don't pay enough, it's going to be the best ones who leave. And every time somebody leaves and is replaced, it's costing you about £10,000 each time it happens. I'll explain that in a minute. But also, if you pay slightly more than the going rate, just only a few percent more than the going rate, you can then take your pick of the market. You can have the best people, and that's going to help hugely. There's going to be less management time, more creativity, better products. Everything is going to be brilliant. So just pay slightly more than your competitors, and have the best people. That's so much better than paying slightly less than your competitors, and then having a large turnover of people at £10,000 a time. So, people join companies and they leave managers. So it's really important to have good management. And we've talked about this earlier on. It doesn't cost much to manage people well, just to communicate, to listen to them, to thank them. It's free to thank people. Involve them in decisions, train them, give them interesting work, give them challenges, and you'll get more out of them. So you'll get better output as well as the fact that they're more likely to stay. So good management is a no brainer. I want to go back to that thing about £10,000 for the cost of somebody leaving. Let's just look at the cost of someone leaving. I've heard figures from 5,000 to 15,000 to replace a person. And I guess it depends a little bit on what the job is, on the type of person, how much training's required, that sort of thing. But, in general, you get a kind of mushroom shape. I sometimes call this the toadstool of turnover, just to make myself laugh. But, anyway, it's a sort of mushroom shape. So what you've got, first of all, is you've got the slope down. And this is the reduction in performance of a person who's unhappy, who's starting to think about leaving. And then they've decided to leave, and they're applying for other jobs. And their performance will gradually decrease to almost zero, then they leave, and then you've got the flat bit of the mushroom. I'm thinking of an upside down mushroom here, really. So you've got the flat bit, and this is the gap, when you just don't have a person. So what's the cost of that? Well, you may have to cover it with overtime. You may just be losing out on opportunities. Imagine if it was a salesperson, you've got a whole time when you're not selling, and your competitors are getting in. So you've got the gap. In the middle there's a big spike. I think of this as the stalk of the mushroom. And this big spike is the cost of recruiting a new person. So you've got to do interviews, you've got to advertise. You might have to pay headhunters, recruitment agencies to find you someone. So there's a great big cost there. And that's going to be a few thousand quid by the time you add it up, all the interviewing time. That's a big job. And then, finally, you've got the slope back up again afterwards. So the new person arrives. It's probably going to be several months before that person is fully effective. They've got to be trained. They've got to learn how the organization works and fit into the team. So, you've got the sloping down, you've got the gap. You've got the sloping back up again, and you've got the big spike of recruiting somebody. So let's just think about a few numbers on this. Imagine if, on average, people stay for five years. Now that's quite a long time actually, but suppose that you've got people who, I think most companies it's less than that, actually, 'cause you've got a lot of people who leave after a year who drag the average down. But suppose the average stay at your organization is five years. So that's 20% turnover. That means every year 20% of people leave and have to be replaced. So if you have a 100 people, that's 20 people a year you've got to replace somehow. And if it costs you 10 grand a time, that's 200 grand that you're spending every year on replacing people who leave. And if you could save half of that by decent management that would save you a £100,000. So, have good management. Measure, do the Pareto on the causes. And at least have an exit interview where you say to people who are leaving, "Please will you tell us why you're leaving?" And make sure it's informal. Make sure it's confidential, so that they really will tell you. If there's a problem with the boss, you need to know. So make sure you have a really effective exit interview.