10 Surprising Ways Employee Turnover Is Killing Your Bottom Line

Businesses with high employee turnover are struggling to survive - let alone grow. Poor recognition is strongly correlated with high employee turnover. Gallup recently found that nearly 55% of employees do not receive any type of recognition. While those that do are 9 times more likely to be engaged in their work.

In this guide, we’ll explore how employee turnover is keeping your company from reaching its full potential and suggest some helpful strategies to reverse the trend.

Understanding the Hidden Costs of Turnover 

High employee turnover can silently shrink your margins and kill your company. Companies often overlook some of the hidden costs associated with employees leaving a company. Depending on the seniority of the employee, a company can expect increased employee costs between 30-50% for entry-level workers to 100-150% for supervisors. 

Common Causes of High Turnover 

Let's take a look at what some of the common causes of high employee turnover are:

• Lack of appreciation/recognition - A failure to recognize and acknowledge good work and high performance or give feedback consistently.
  
  
• Toxic work environment - A disrespectful, cutthroat, unethical, abusive, and/or non-inclusive workplace contributes to a toxic culture.
  
  
• Reorganization/changes in leadership - The restructuring and reorganization that leaves employees uncertain of their job security.
  
  
• Inadequate compensation - Employees want adequate compensation for their work.
  
  
• Burnout - A state of emotional exhaustion and physical fatigue at work. (Did you know that 41% of employees are currently experiencing burnout at work?!)
  
  
• Poor work-life balance - Employees feel frustrated that work consumes more of their lives than they would like.
• Lack of growth opportunities - Employees feel trapped in their jobs and don’t see any opportunities to progress within your company.
  
  
• Poor management - Your manager can make or break a job. Sadly, nearly 7 out of 10 people said that they would quit their job if they had a bad manager.

10 Surprising Ways Employee Turnover Is Hurting Your Bottom Line

Dealing with employee turnover can have seen and unseen costs associated with it. Not only are you trying to replace someone’s salary, but now you’re managing a reduced workload, declining morale, and a strain on the customers. Here are 10 hidden costs of employee turnover to watch out for:

1. Increased Recruiting and Training Expenses 

When turnover is high a company is constantly searching for replacements. This causes continuous recruitment efforts by the HR staff and increases advertising costs by posting open positions on various platforms. Then there is the time spent screening applications, interviewing candidates, training, and onboarding new employees. 

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In addition to the time costs of training and onboarding new employees, the training costs need to be accounted for as well, such as materials, equipment, and personnel. Do you have a training specialist or is another employee taking time from their other projects and workload to provide comprehensive training on company procedures for the new employee to reach the desired performance level?

2. Lost Productivity and Institutional Knowledge 

When employees leave a company they don’t just take the items from their workspace in a box, they also take precious knowledge regarding the company’s operations, processes, and customer relationships. 

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New hires require time to learn company operations and processes and it may take even longer to build customer relationships. This will result in a temporary productivity decrease between when a former employee leaves and when the new hire is up to speed.

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In addition to the gap in knowledge between the former employee and new hire, important information regarding customer needs, intricate projects, or processes may not have been sufficiently documented or transferred to other employees, leading to possible mistakes or missed opportunities. Even if you can hire quickly, it can still take 1-2 years for new employees to reach the same level of productivity as your former employees.

3. Declining Team Morale and Engagement 

Constant staffing changes cause disruptions in established team dynamics and workflows, which can lead to confusion among remaining employees. To meet project deadlines, remaining employees may need to work longer hours and take on greater workloads to make up for the shortage of staff. This can lead to:

• Increased employee burnout 
• Decreased productivity
• Higher turnover with remaining employees
• Decreased engagement
• Increased stress

High employee turnover can also disrupt company culture and team cohesion, making integrating new team members difficult and lacking trust within the team. It can also create a cyclical event. As employees continue the viscous turnover cycle, stress compounds your employees who are still there. 

4. Negative Impact on Customer Satisfaction and Loyalty

High employee turnover doesn’t just affect your other employees. It can directly affect your customers too. High turnover can negatively impact customer satisfaction and loyalty by:

• Lack of experience - New employees generally lack experience and/or knowledge of the company’s products and services, hindering their ability to provide consistent, high-quality service which leads to customer frustration and dissatisfaction.
  
  
• Increased mistakes - New employees may make more mistakes while getting up to speed, which can negatively impact the customer experience.
  
  
• Increased training - Constantly training new staff takes time and resources, which could otherwise be spent enhancing customer service and improving satisfaction.
  
  
• Lost relationships - Frequent turnover means customers lose the opportunity to build strong, trusting relationships with staff, which can diminish their overall experience.

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5. Strained Workloads for Remaining Team Members 

Employee turnover directly impacts the balance of the workload among remaining team members, increasing individual workload, increasing stress, increasing overtime hours paid, increasing errors, and decreasing quality of work. Feeling overworked may cause team members to rush through their work to just “get it all done” as quickly as they can, with the hopes of getting home at a decent hour. 

6. Delayed Projects and Slower Time to Market

When an employee leaves, that can often derail (or significantly delay) the momentum of a project. There are fewer people and man-hours for you to complete everything that needs to be completed. That 2-week turnaround time just increased to a 4-week timeframe. This slowdown not only hurts current projects but can also cause you to miss out on future projects because of not having enough bandwidth.

7. Reduced Quality and Innovation due to Constant Change 

When the unbalanced workload becomes taxing on the remaining employees, they tend to rush through their work. That rush can lead to more errors, poor quality of products/services, an increase in customer complaints, or a loss of business and customer loyalty. Constant changes in staffing and the stress that they impart weaken a team's ability to have synergy, diminishing the creative and innovative opportunities that come from collaboration.

8. Damage to Your Employer's Brand and Reputation 

High employee turnover affects the quality of work produced by remaining team members who feel overworked, directly impacting the business's reputation with customers. This can range from defective tangible products to poor customer service. However, high employee turnover also impacts your reputation as an employer and who you can attract to your workforce.

9. Elevated Stress and Burnout Leading to More Absenteeism  

The increased stress on remaining employees impacts their physical and mental health. Employees who feel burnt out have a 57% higher likelihood of having a two-week (or longer) absence due to illness. Additionally, workplace burnout may impair short-term memory, attention, and other cognitive processes essential for daily work activities.

10. Lower ROI on Employee Development Initiatives 

An organization cannot fully reap the benefits of investments made towards employee development when employees leave shortly after receiving training, basically wasting the cost of training time and effort on people they no longer employ. The newly acquired skills and knowledge that would have led to an increase in productivity and innovation are now a sunk cost.

Strategies to Reduce Employee Turnover Costs 

It’s one thing to know how high turnover can hurt you. It’s another thing to know how to stop it. Here are some strategies to help you stem the tide of constant employee turnover.

1. Improving Onboarding Experiences 

First impressions matter. Having a good onboarding experience can create a solid foundation for your new employees to thrive in your company. In a recent study, BambooHR found that 89% of employees who had a good onboarding experience were engaged at work. Higher engagement means happier employees and happy employees stay longer.

2. Offering Competitive Compensation and Benefits 

Like Maslow’s hierarchy of needs, an employee’s base needs have to be met first before additional needs can be met. Compensation and benefits are two of the foundational needs that all employees have. If they can’t keep food on the table, it won’t matter how great the culture is. Nearly 50% of workers will look to leave a company within the next 12 months because of poor benefits. Likewise, 78% of those staying say that they’re likely to stay with a company BECAUSE of having great benefits.

3. Fostering a Culture of Recognition and Appreciation 

Creating an amazing culture is not an overnight endeavor. It takes time, consistent effort, and focus from leaders to help it take place. The key to unlocking success is getting managers and employees to help foster the culture. Research shows that a manager can make or break an employee's leaving. Oftentimes it can be over 50% of workers would have stayed if their managers had done something.

4. Providing Career Development and Growth Opportunities 

Career development opportunities can play a crucial role in retaining your top talent. Showing employees that they have upward mobility in your company can:

• Reduce Recruitment and Training Costs: Promoting from within reduces the need for external hiring and the associated expenses of recruitment, onboarding, and training new employees.
  
  
• Boosts Motivation and Productivity: Knowing that their efforts can lead to career progression encourages employees to work harder and contribute more effectively.
  
  
• Fosters Employee Loyalty: Employees are likelier to remain committed to a company that invests in their professional development and growth.
  
  
• Boosts Motivation and Productivity: Knowing that their efforts can lead to career progression encourages employees to work harder and contribute more effectively.

Enhancing Internal Communication and Transparency 

Improving communication is one of the most impactful ways to increase engagement and decrease turnover. A recent survey believed nearly 86% of respondents blamed poor communication on workplace failures. 

Not only is it important to send out the information that employees need to know, but you also need to be able to reach them where they are. Whether it’s a remote workforce, in-office workforce, or desk-less workforce, companies struggle to get the right information in front of employees. More and more companies are leveraging tools with multi-channel distribution so mission-critical communications can be sent via email, SMS, Teams, and other channels so employees don’t miss them. 

Measuring the Impact of Your Retention Efforts 

There’s nothing worse than putting effort into an activity and afterward looking around and asking yourself, “Did that even make a difference?” As you roll out different initiatives it’s imperative to make sure that you're spending your time and energy on things that will move the needle and improve work for your employees.

Utilizing Key Metrics and Analytics 

The key to making progress with your employee turnover is to measure it. This will allow you to make changes to your plan and know the impact. Some metrics that you’ll want to keep an eye on are:

• Overall turnover - This measures the percentage of all employees who are leaving your company.
  
  
• Voluntary turnover - This measures the percentage of employees who are leaving by their own choice (e.g. getting a different job offer).
  
  
• Involuntary turnover - This measures the percentage of employees whom you had to terminate, lay off, or let go.
  
  
• New hire turnover - This helps measure how your new hires are adapting to your company and if your onboarding process is working.
  
  
• Retention - This measures how long your employees are staying. We recommend breaking it down by tenure (0-6 months, 1-2 years, 2-5 years, etc.) so that you can spot gaps in your employee lifecycle.
  
  
• eNPS - This gives you a 30,000-foot view of how your company is performing and if employees would recommend it to their friends.
  
  
• Engagement scores - These help you measure if employees are feeling engaged and connected with the company.
  
  
• Shoutouts received - This helps you measure whether employees are giving/receiving shoutouts from their peers. If someone isn’t receiving any shoutouts, it might be a red flag for a deeper problem.

Collecting Employee Feedback and Insights 

When a company is small, it’s easy to gather feedback from employees on what is working and what is not working. As your company grows, however, it can be difficult to get around the proverbial water cooler and listen to what employees are saying.

In recent years, survey tools like eNPS (employee Net Promoter Score) and engagement surveys have allowed companies to have quantifiable numbers around what is working and what isn’t working. These tools allow you to see the improvements your initiatives are making quarter-over-quarter and year-over-year.

Tracking Long-Term Improvements in Productivity and Morale   

While it would be amazing to wave a magic wand and magically improve employee morale, lasting changes do take time and consistent effort. As you roll out new employee recognition efforts, realize that it may take several months or quarters to see the impact on employees. 

We recommend that you keep track of these metrics and measure them on a quarterly, semi-annual, or annual basis. This gives you enough data to factor in seasonality. Now you’ll have enough time to measure impact but quick enough to still make changes.

The Value of Prioritizing Employee Retention

Your employees are the heart of your company. Replacing employees can be costly - sometimes even up to 200% of their salary. So being able to retain your top employees can not only save you headaches but can save you a lot of money too. 

The great thing? There are things you can do right now to help keep your employees. Research has shown that those who receive high-quality recognition are 45% less likely to leave their jobs.

Ready to boost morale, engagement, and loyalty in your teams? Book a free Nectar demo today to see our platform in action.