Turnover: What is it and what is its true cost?
Quite simply, turnover is expressed as a ratio, the number of employees who have left during the year divided by the total number of employees at the beginning of the year.
As for the cost of turnover, estimates run as high as 150 percent of annual salary for mid-level employees (Ross Blake, Employee Retention: What Employee Turnover Really Costs Your Company - 2012, March 1). If we assume the average salary of an employee in a given company is $50,000 per year and the cost of turnover at 150% of salary, then the cost of turnover is $75,000 per employee. For a company of 300 employees with a 10% annual rate of turnover, the annual cost is over $2 million dollars.
More conservative estimates place turnover expense at one fifth of an employee’s annual salary (CAP 2012 study). Even if we accept the lowest rate of twenty percent, organizations such as Community Health Centers typically experience higher than average levels of turnover, which is still a significant cost. The higher your turnover, the higher both your direct and indirect costs will be and as the rate increases, the costs follow. The cost of lost time and productivity are no less important or real than the direct costs of paying vendors for supplies and services.
In addition to the obvious direct costs of hiring and training, there are many hidden, less tangible costs that cannot be quantified. The costs may be hidden, but they are still there. Two of the biggest ones are lost opportunity and morale costs. The cost of business lost because you didn't have the human capital to do the work while you were shorthanded equates to incoming calls not answered, appointments not scheduled and lost patient revenue. Reduced morale from other employees continuously having to cover the workload of departed employees can quickly lead to burnout and more turnover, another vicious cycle. This can also create desperation on the part of the employer, leading to the "warm body syndrome" hiring process that many Community Health Centers experience.
The only way out is a systematic culture shift with employee satisfaction being a top priority. Meaningful jobs provide opportunities to make choices, develop skills, do work that matters and build interpersonal connections. This also includes paying employees appropriately. The unintended consequence of pay inequality is resentment, which undermines performance, collaboration and retention.
Bottom line: It is far most cost effective to keep your current employees engaged and motivated than it is to find, hire, and train new ones. Happy employees create happy patients, which can save you a million dollars for the investment in your organization. This alone should motivate you to treat your staff well.
Lesa Peterson is a Sr. Consultant for FQHC Associates and Merces Consulting. Previously, as the Director of Operations for a community health center, she was responsible for the administrative operations of the organization, including a Ronald McDonald Care Mobile® program.
To contact Lesa, email her at LPeterson@FQHC.org.