The Cost of High Turnover

Over the last several years, I frequently referenced a study I initially found from Gallup that cited some Bureau of Labor Statistics data in saying that “According to a Gallup study, “The U.S. Bureau of Labor Statistics has found that the U.S. voluntary turnover rate is 23.4% annually. It's generally estimated that replacing an employee costs a business one-half to five times that employee's annual salary. So, if 25% of a business' workforce leaves and the average pay is $35,000, it could cost a 100-person firm between $438,000 and $4 million a year to replace employees.” While I believe that alone makes a strong point about how expensive turnover really is in an organization, the cost of high turnover can be so much more - and that’s the next profitability killer we’re going to address!

Nearly every time I’ve shared that with a group of leaders, I’ve challenged them to consider how even the most conservative numbers in that quote impact the profitability of their own organization but I’ve come to realize that doing this doesn’t capture the entire picture… First, let’s consider how much a company’s average wage is today since minimum wage has nearly double in the last two years - going from $7.25/hr to $12/hr as I share this, with $15/hr being the widely discussed target that’s likely to be achieved sooner than later. Now let’s factor in the combination of the Covid pandemic and the “Great Resignation” that’s resulted in Help Wanted signs at just about any business we drive by or walk into on any given day. At the risk of having a flag thrown on me for piling on, think about companies like Sheetz or Walmart offering $17-18/hr as a starting wage for full time positions combined with the significantly higher minimum wage all but forces companies to increase even the entry level wage for skilled and semi-skilled roles that had been between $14 & $17 per hour as recently as 2019. Oh, and we can’t hardly pretend that all this doesn’t spill over into each and every other pay range on up the company ladder!

Quite honestly, I’m convinced that $438,000 for a 100 person company, the low end referenced in that now dated Gallup study, no longer exists! When I’m seeing starting wages for full time retail positions at or above that $35k annual salary in the sleepy (and beautiful) Shenandoah Valley, where the cost of living has traditionally been way lower than the larger metropolitan areas only an hour or so away, I have a really tough time imagining many organizations maintaining an average salary under $50,000… And everything I’ve hit on to this point has been tied to those BLS norms, so just how much is the cost of high turnover and how can we capture the profit it’s killing?

Before we begin working through any of that though, let’s make sure we’re on the same page with exactly what turnover I’m referring to - because it ain’t all bad! Let’s be honest, there are times where turnover is necessary. That doesn’t mean it’s not difficult or that there’s no cost involved, but every business will have situations to deal with where performance isn’t where it should be or someone isn’t aligned with the culture or values. And from time to time, we get to celebrate a team member’s retirement… Neither of those are what we’ll be addressing. The turnover I’ve always been most focused on minimizing, regardless of how high it is, has been the voluntary kind; the kind where a great team member chooses to leave and it could have been prevented. I believe that’s a significant profitability killer and each of the two things we’ve addressed recently - top-down leadership and poor communication - play a role in driving our turnover percentage up.

Moving forward, we’ll take a look at how those, as well as a few other things, can be causing high turnover. Stay tuned!