By Brian McKay
Turnover in a business can cost. Big time. The worst part is that the costs of high turnover are mostly hidden costs that you won’t see materialize on the income statement until it’s too late and income starts falling.
The saying in business has always been, “Be slow to hire and quick to fire.” That’s great when choosing employees, but what about when employees are choosing to leave you en masse? It’s costly. Very costly and you need to rethink your approach. If a guy kept going on dates for years and years and kept getting dumped, he might need to rethink his approach as well.
Having seen companies with excessive turnover (some as high as 70%) and their lack of true focus to stem that turnover, it isn’t any wonder that their customers feel abused and forgotten. The costs of new employees without the requisite experience is massive when your customers start thinking that everyone in your company is incompetent. Having consistent faces in front of your customers is also important. If you have return customers, they start to wonder when there is a new face to deal with every time they return. Few things are more soothing to a customer than seeing a consistent face and knowing that employees like the company enough to stay. Disgruntled customers don’t show on the income statements until they are past customers.
Mistakes are horrifically costly. It shouldn’t be of any surprise that new employees make far more of them. Whether it be in customer service, processing, operations, etc., mistakes cost you a lot. A trained and experienced employee will simply make far fewer of them. So where are mistakes on the income statement? Well, mistakes don’t have a line item and can only be seen indirectly in things like Cost of Goods Sold or Cost of Sales. In other words, you probably aren’t seeing the true cost of them.
Late packages, a poor customer experience, miss ordered goods and improperly processed orders, are all examples of mistakes that might come from high turnover but are mostly hidden from executives until it is too late.
So where might you see the costs of a high turnover reflected in the numbers? Well if you have training staff or training expenses broken out, you might see it there. That’s it. Again, if high turnover isn’t reduced its effects will be seen much too late. Don’t wait until income is falling and customers are leaving.
It takes active management to confront and work to stem the costs of high turnover. You have to allow total honesty from supervisors as to why employees are leaving. Exit interviews, if given, need to be scrutinized because they might be one of the only times an employee felt comfortable being honest. Get an idea of what is a major concern across all of the areas you study, narrow down the causes of those concerns and start probing and learning.
As zenruption has mentioned in the past, business is really the exercise of continual probing and learning. Stemming employee turnover requires tremendous discipline in probing and learning. Making changes is great, but studying the effect is even more important.
Once you have found out that job stress or bad incentive plans are forcing turnover, start with small changes in favor of the employee. Yes, it is tough. Higher incentive payouts will definitely show on the income statement, but rest assured that turnover was costing you more. Changes need not be dramatic and sweeping, as that can distort the results and over compensate to a point from which it is hard to recover. Giving is easy. Taking away again is brutal.
So small measured changes in the area that needs improvement and start tracking. The numbers won’t start instantly meting out, but will show improvement over time if you have done the right thing.
Keep repeating from there. A commitment to retaining employees is one of the greatest things your business can always improve on. It is one thing to say that employees are your most valuable resource and another to truly act on it.
Make a commitment to stop getting dumped and start down the road to long term relationships with your employees.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license
Brian McKay is a zenruption co-founder and has his MBA from Boise State University. He has seen far too many companies that improperly address high turnover. Turnover is a term that should be used with an apple based desert, not your employees.