Sunday, July 25, 2010

Is Your Employee Turnover Rate Acceptable?

Employee turnover is inevitable. But it's stupid decisions leading to employee turnover that is eating up the profits of businesses.

A glaring example of management drinking its own Kool-Aid is something I call "industry-average syndrome," where managers accept turnover as normal because it's near or slightly under the industry average. My mother used to reprimand me when I got in trouble with friends by asking, "if your friends jumped off a bridge, would you follow?" Apparently many employers heard that same message too. Unfortunately, rather doing a little critical thinking, they are literally jumping off the bridge when it comes to managing employee turnover.

It's a sure thing that workers will come and go for reasons ranging from unpredictable life choices to avoidable stupid hiring decisions. There will always be turnover. But using the industry average as your standard is a cop-out and a very bad practice. That thinking might have worked when margins were high and it was easy to raise prices, but it's unacceptable if you want to stay in business today.

Employee turnover should be treated like a cancer, not the common cold. The cost of turnover is staggering. The effort and sales needed to recoup these costs can be devastating.

Management has no one to blame but itself in many cases.

Research studies have consistently shown that turnover in North America ranges between 25-30% on average. With estimates for the true cost of turnover ranging from 25% for entry level jobs to 250% or more of annual salary for senior management, it's not rocket science to realize that this can't continue. These averages deceive management and suck time away from projects, resources and profits to reinvest for growth and innovation.

In a recent study by the Canadian Grocery Human Resource Council (CGHRC), participants reported an overall employee turnover rate of 38.7%, with an average voluntary turnover rate of 31.7%. The study concluded that turnover should be defined as "an expense without an invoice."

Additional research by the Canadian Food Industry Council (CFIC) found that the cost of turnover; finding, interviewing, training and equipping a new hire; is at minimum $1,500 per frontline employee.

Now $1,500 may not really sound like a lot of money until you factor in that nearly four out of every 10 new employees leave for whatever reason. To put that $1,500 figure into perspective, consider what it takes for one store to recover that cost: If a store's net margin is 1.5-3%, the store has to sell $60,000 worth of groceries to recover the cost of losing a single employee!

If that doesn't give management pause for thought, what will?

The first step in reining in runaway labor costs is to calculate what your cost of turnover is in the first place. In other words, for every employee you need to replace, what does it cost you to recruit, hire and train a replacement? I'd then take it one step further: how many sales does it take to recover those costs?

Take a few minutes to figure out what it costs you every time an employee goes home and doesn't return...and how hard you have to work to recover this expense without an invoice.

Copyright (c) 2010 Success Performance Solutions

Ira S Wolfe is a "Gen Y trapped in a Baby Boomer body." He is a widely respected expert, speaker, and consultant on workforce trends and pre-employment. In addition to serving as president of Success Performance Solutions, he is the author of "Geeks, Geezers, and Googlization" and "Perfect Labor Storm 2.0."

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