How to avoid the high cost of turnover

In most companies, the biggest expense is human capital. While that is not a newsflash, what is surprising to many business leaders is the true cost of turnover.

Sam was hired as a sales executive with a manufacturing company. He earned a base salary of $50,000. If he made his realistic sales goals he would easily earn $100,000 or more. Martin, his sales manager, spent the first two weeks letting Sam shadow him to learn the ropes, but knew that it would be about six months before Sam would close a deal of his own.

After six months, Sam had some prospects that looked promising. By month nine, Sam still didn’t close any business. Martin was starting to think about letting Sam go, but didn’t want to cut him loose when he might be close to closing a big deal. After a year and no sales, Martin realized Sam was not going to be successful in his role and started the process of documenting results. Sam worked for 15 months, covering a territory worth millions of dollars to the company and producing no results.

Turnover costs range from 30 to 250 percent of a person’s annual salary. According to the Society of Human Resources Management, cost of turnover is 1.5 times the departed employee’s annual salary and benefits.

Sam didn’t cost the company $50,000 in a base salary, he cost the company somewhere between $50,000 to $125,000 and possibly as much as $1.2 million. In terms of monthly expenses, that’s $4,200 to $10,400 per month and as much as $100,000 per month every time someone doesn’t work out in a $50,000 position.

While it’s possible that Sam was not a good match for the job and shouldn’t have hired in the first place, let’s consider another possibility. It’s also possible that Sam was a great match for the role but was not well-prepared to succeed once he started the job.

Martin had the best of intentions, but things were busy when Sam started and he didn’t have time to devote to training his new hire. After two weeks of shadowing, Martin assumed that Sam knew enough to get started, especially since he had experience with a similar company. Sam tried his best to prove himself worthy, but everything took longer because he didn’t know who to talk to internally and he had to find answers to questions he was certain were not new to the company.

Sam felt isolated in a large organization of busy people just trying to keep up with their own work. Within the first month, he felt disconnected and was already updating his resume.

According to McLean and Company’s 2011 study, 70 percent of new hires make their decision to stay or leave a company within their first six months.

Here are three quick tips that Martin could have utilized to set Sam up for long lasting success in his sales role:

  1. Provide documentation to address the FAQ’s the company has compiled over the years.
  2. Video training that takes a new hire through some of the technology tools that the new hire must understand and allows them to review any part without having to ask someone for help.
  3. Assign a “buddy” to help acclimate the new hire into the company culture.

Successful onboarding is essential to a person’s success in their role over the long term. When people do not feel like part of the team, they don’t work hard for the team’s success. Onboarding is not just about teaching people the skills of their specific role, it’s about communicating to new hires that they are important, valued, appreciated, and that there is a long future for them with their new employer.

It takes time and effort to build your professional onboarding process, but once it’s done, you have it forever – and it will continue to impact your revenue in a positive way.


Categories: Management & Leadership