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It's long been known that employee turnover is an expensive cost of doing business. In fact, it's one of the most pronounced HR challenges that organizations face, particularly when they're trying to implement metrics that actually quantify the cost of losing and replacing employees.

If you can relate to the difficulties of measuring the exact impact that turnover has on your revenue, read on!

What Causes Turnover?

In some ways, turnover is caused by a virtually indefinite amount of circumstances. Some is voluntary and some is not. Some turnover should be considered a good thing, as it may allow for positive changes within the organization. On the other hand, too much bad turnover should be cause for evaluation and analysis to determine the overall impact on the company.

How is Turnover Calculated?

A commonly accepted calculation for turnover involves dividing the number of terminations during a specified reporting period by the average headcount within the same period. The resulting percentage is the starting point you'll need to use to understand the overall effects that come with changes in staffing.

What Do You Do with This Number?

In a white paper entitled The SuccessFactors Standard: Differences in the Measurement of Retention and Turnover, SuccessFactors does a great job of explaining how you can use analytics to quantify the costs of turnover based on different factors such as type of job, tenure, location, department, gender, and performance rating. With this number, you can appropriately measure the cost of turnover against set benchmarks.

When compared against benchmarks, the employee turnover rate can help provide visibility into your company's ability to deliver the workforce necessary to execute business strategies.

How Can You Measure Your Metrics?

Once you have implemented a core HRIS that allows you to gather the necessary data, you can simply pull reports that tell you what you need to understand the cost implications of your organization's turnover.

Using the following key ingredients as an example, you can clearly see how turnover data falls in line with the bottom line:

  • Average Headcount
  • Termination Rate (determined using the above calculation)
  • Terminations Per Year
  • Average Annual Salary
  • Salary Multiplier (If this is an unfamiliar term, consider working with an expert who can help you understand the best multiplier metrics for your particular business. In general, you can use 1.5 for exempt employees and .75 for non-exempt employees to derive a reasonable figure.)
  • Average Cost of Turnover
  • Annual Cost of Turnover

To get the most out of your metrics measurements, there are a few things you should pay attention to. For example, new hires who leave your organization cost less than seasoned staff members. High performers will have a greater impact than those who are just getting by. When you have the right HRIS in place, you'll be able to see how each termination affects your revenue.

We'd love to hear how you've overcome the challenges of knowing exactly how employee turnover effects your revenue. Share in the discussion by adding your comments below!

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Vijay Nachimuthu

By Vijay Nachimuthu

Vijay Nachimuthu is a Managing Principal of AltaFlux. His blogs mainly focuses on latest cloud technology trends and its impact on enterprises.