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The Real Cost of Losing a GREAT Employee!

March 28, 2017

If you have ever thought, hey I can fire this person, or they can quit, because I can personally just replace them, until we get somebody else in here, and then it won’t cost my company any money. Well that is incorrect. Anytime that you (as the owner) put in, is the most expensive time. You are the top revenue earner for your company so your time needs to be spent doing better things.

Of course this varies from company to company and market to market, but according to some statistics taken by Forbs,

  • For entry-level employees, it costs between 30-50 percent of their annual salary to replace them.

  • For mid-level employees, it costs upwards of 150 percent of their annual salary to replace them.

  • For high-level or highly specialized employees, you’re looking at 400 percent of their annual salary.

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  • Entry level employees, with an average salary of $40,000. It costs, on average, $16,000 to replace each employee at 40 percent of their annual salary.

  • For mid-level employees, with an average salary of $80,000. It costs, on average, $120,000 to replace each employee at 150 percent of their annual salary.

  • For senior employees, with an average salary of $120,000. It costs, on average, $480,000 to replace each employee at 400 percent of their annual salary.

 

But where do these costs come from? They break down to three areas:

  • Hiring and Training

  • Errors Made

  • Time on Job

Let's say it cost $30,000 every time you lose an employee, regardless if they quit or were fired. There is the cost associate with training, errors made by the employee, and the time they put in. We're going to say adds up to a $30,000 loss. Shocking, right?

Let’s talk about hiring. You have to look at the cost for the time it took to look at resumes, read emails, and do interviews. Plus the cost of using a headhunting service, if you choose to use one.

 

Then there is training. Training can be calculated by adding together the cost of the trainer, the training materials involved, the space used for the training. Even if you have the space on site, that space could be better utilize for something that generates revenue, so if it is occupied for training a new employee, then you're losing money. It also cost money for electricity and your lease payment. You may include food, travel expenses, and hotels.

The next thing is errors made by the employee during their time there, especially the training period in the first 3 to 6 months. Employees in training can really hurt your bottom line and without a lot of guidance there's going to be errors made. Without proper quality controls, you will lose money, it’s just a fact.

 

And last one is time on the job. This includes the employee salary and any benefits they may have received.

 

So we're just going to break this down by the numbers, in this example we have:

 

*$2500 for training

* $2500 errors made by the employee

*$10,000 salary

  $15,000  Total

 

 So you lose $15,000 from everything it cost for that employee training, and then it's going to cost you another $15,000 to bring a new employee in and train them. So this means it cost you $30,000 when we fire an employee or have one quit, in this example. 

 

This should make you take employee hiring and retention more seriously. This is where company culture comes into play. If you hire people that fit your core values and company culture, it is highly likely you will retain the employee for much longer.

 

Company culture will help make your employee’s work part of their identity and a positive experience. They will feel a part of something bigger and sometimes that's really mostly what they are looking for. Learning how to instill company culture in your company is going to help retain employees, reduce turnover, and is going to add money to your bottom line by saving money. This also forces you to weed out those that don't fit into your company culture or never hire him in the first place. In the end, you will have a great team of people, that work really well together, and a much smoother running organization.

 

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