Following last week’s newsletter, in which I started the conversation on Hiring for Success, I got a few inquiries regarding how to calculate cost of turnover. Therefore, I thought I would start this week, with a bit more information about that.

 

While turnover costs can be a complex formula for some organizations, it can be fairly straight forward, if all you are looking for are ballpark costs.

 

Lets start by setting context: Many employers mistakenly assume that they are doing the perspective employee a favour by providing them with employment. In fact, the employee is doing us a great service, for without them, we would not be able to offer our products or services in the manner that allows us to build our brand in the community. With this in mind, understanding the value of good employees and the cost of bad ones is critical.

 

What Does Turnover Cost You?

 

Most organizations operate on the premise a small number of staff will leave over the course of a year (turnover rate). Exceptions to this rule include seasonal industries like tourism and some service companies where higher turnover occurs on a regular basis (restaurants, sales etc). these types of rims build their business models for high turnover.

 

An organization can be considered “turnover stable” when employees leave at a rate that does not impede or restrict normal operations. In other words; their knowledge, skills, and contributions can be reasonably managed by the remaining workers until a replacement is found, without negative impact to the remaining workforce. If you are finding that a loss of even one employee is too taxing for your team, or increases the stress loads significantly, you are not turnover stable. In fact, you probably need to add a staff person to allow your team to create optimal output. (we will deal with this in another newsletter, regarding work-balance).

 

The costs of losing a worker varies by; industry, job type, level of corporate knowledge, internal and external organizational economic factors.

 

Generally speaking, a single turnover costs you between 1.5 and 2.5 times the employee’s annual salary for skilled labour and 1 to 1.5 times the employee’s monthly salary for unskilled labour.

 

Using tools such as a Turnover Cost Calculator, can give you a more precise picture of projected costs and resulting impacts of turnover on your organization. When you compound these cash costs with the hidden expenses (such as corporate knowledge loss, reduced team cohesion, communications breakdowns, competitor advantage and lost individual, unit, or organizational productivity) these hidden costs can run into the hundreds of thousands, and in some cases, millions of dollars.

 

A few years back, I was speaking at a Hospital Executives Workshop in the US. The CEO of the Hospital got up to speak just before me, and was chatting about how they needed to find 400,000 in operational savings in the next year. Using my cost calculator, I was able to show the team how they could save that and more in the coming year; their solution was to reduce turnover by 10%. If they did this, they would have saved about 487,000.00. In other words: there is big money in retention of employees.

 

Your Estimate

The following formula assumes the value of your employee is equal to the cost of the employee. Most companies, however, estimate each employee produces between 1.5 and 2 times what they are paid in value to the company.

 

No of employees leaving each month (times) cost of their productive time, times 15 percent of their monthly salary (lost productivity and cohesion for rest of team) plus your costs for the hiring process = XXX

 

Assuming your employee makes 15.00 per hour and you have one turnover per month: 1 (times 2400 x .15) 2760.00 + 1000.00 = 3760.00 per employee per month. If your employee produces 1.5 times the cost in value, this raises to a monthly cost of: 1x3600x.15+1000=5,140.00

 

EACH employee you lose, costs you 5,140 dollars in value to your business. If you lose three in a year, that’s 15,420.00, not to mention al the other corporate value you lose. All for a 15.00 per hour employee. You can see how with higher skilled trades or professional workforces, these costs can be astronomical.

 

If you want to use a real turnover calculator (Email me: jeremy@nsbia.com) and I’ll send you mine, and tell you haw to use it.

 

Now that you know how important FIT is, and the reality of costs to your business, lets start talking about hiring the right employee, the first time.

 

The first rule of hiring is to take your time. If you can predict turnover, that’s best. However, if your organization is turnover stable, take your time to get to the right hire.

 

Take your Time Tips:

1) Never Hire in a rush or on a whim,

2) Never hire when your “gut” tells your something doesn’t add up,

3) Never hire someone who can’t follow your process, meaning doesn’t include a cover letter or answer those three questions etc.,

4) Never hire a person without checking references,

5) Never hire someone who doesn’t customize their resume to your ad,

 

Step One: Understand What You Need

When building a great organization, always focus on the roles you need for your organization to excel. Many businesses instead focus on the staff they currently have and trying to slot them into the roles they need. this is recipe for dysfunction. Hiring is about the right person, in the right function, performing the right tasks. Many times I have seen the results fo a person who was promoted because they were stars in their jobs, only to fail in management, due to ill fit.

 

My golden rule: Start with a clean slate.

 

Imagine you had no staff, then build the organization you will need. Do this by identifying the following:

 

1) Staffing Budget maximum,

2) Define maximum number of key areas of responsibility

(Finance, Sales, Production, Management etc.)

3) Define the core outcomes for each area of responsibility,

4) Define the key tasks needed to achieve the outcomes

5) Divide the tasks among the roles you defined,

6) Define the common tasks for all team members,

 

If you already have a fully functioning organization, hiring is a great opportunity to refine steps 4 to 6.

 

Once you know what you need, you can move forward:

 

Step Two: Designing Your Ad

As noted earlier, turnover resistant hiring begins before you write the ad for your vacant position. It begins when you consider what type of position is required to fill your needs, the skills required to support the tasks of the position, and the type of interpersonal (soft skills or competencies) that will enhance your current team.

 

 

Your employment ad should be as strategic as any other marketing you do for your firm. It is the primary window into who you are and why a person would want to join your team.

 

Considerations to include when designing your ad are:

1)  What the “ideal” candidate offers to the organization, who are they and what skills, fit elements and values they will provide you.

2)  What the organization offers the candidate (benefits/advantages), who are you and what will you provide?

3)  “Brand supportiveness” – does the Ad make you look professional, credible and desirable to work for? Is it well designed?

4)  What the position entails – what they will actually be asked to do, in a concise manner.

5)  The culture of your organization – why they would fit with you, what you care about as people in regards to values,

6)  Pertinent aspects of employment (drivers license, certifications), these are the MUST haves, before you can be considered,

7)  Core duties, general description, or tease these into a to package on your website,

8)  An effective headline that draws people in.

 

An effective ad is also one that does not look like your competitors. It can stand out for a number of reasons:

 

Ad design and layout

             Colour, border, image (logo), balance, anchor and header

Content

             Culture, benefits, requirements, fit qualities, power words

Structure

             Benefit, Need, Benefit – or –

             Culture, Need, Benefit – or –

             Benefit, Culture, Need.

 

Assessing Ad Strengths

An ad which appeals to readers on a variety of levels (emotional, logical, needs) can be considered an effective ad. The more reflective the ad is of the three core needs of a candidate, the more likely you are to receive greater response and to find the candidate that “Fits” your needs.

 

Ads are considered weak when they do not provide:

 

To recap, some of what we have learned, a good recruitment system should include the following:

 

 

Next time we will dig into the package, and what to do with it in order to remove poor quality candidates.