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Your cost of turnover is... |
BobGately
Joined: Dec 25, 2001
Posts: 995 |  Posted: 2002-07-17 09:33
To calculate your annual turnover rate and cost of turnover fill-in the numbers below and then do the simple calculations.
Line 1: Number of employees
who were replaced
last year = ?
Line 2: Average number of
employees on the
payroll last
year = ?
Line 3: Average annual salary
of those that were
replaced last
year = ?
Line 4: Select the multiplier
for replacing an
employee, see below = ?
1.25 for annual salary under $40K
1.50 for $40,000 to $60,000
1.75 for $60,000 to $90,000
2.00 more than $90,000
Line 5: Turnover rate =
(Line 1)/(Line 2)x100% = ?
Line 6: Cost of turnover =
(Line 1)x(Line 3)x(Line 4) = ?
Most managers are surprised when they calculate their total cost of replacing employees since it is much higher than common "cost to hire" estimates which are just a small part of the cost to replace.
Bob Gately
gately@compuserve.com
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Detta
Joined: Jul 13, 2002
Posts: 11 | Posted: 2002-07-17 20:08
Thanks for this very informative equation. I'm emailing it to myself at work to calculate tomorrow and plan to present it to my boss (President of the company) to help him see the value of our efforts to keep our good and hardworking employees.
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Detta
Joined: Jul 13, 2002
Posts: 11 | Posted: 2002-07-18 07:06
I think there may be a mistake or two in this equation as posted. If it IS correct, can someone help me understand where I'm going wrong?
Consider the following stats:
Say 20 replaced employees out of 100 total, with an average salary of 30K.
Line 1 = 20 (replaced employees)
Line 2 = 100 (total employees)
Line 3 = 30,000 (avg salary)
Line 4 = 1.25 (as indicated by chart)
Line 5 = .20 (line 1 divided by line 2 times 100%)
Line 6 then equals $750,000! The total salaries of those 20 employees for the entire year only total $600,000. This can't be right, even if you figure the additional cost of benefits at 40%. Also, line 5 never gets figured in.
How does line 5 figure in the equation? And further, on line 5, I don't understand the point of multiplying times 100%. 100% is the same as multiplying by one, isn't it? Or am I misapplying the equation?
Perhaps I should then multiply the 750,000 by the 20% of line 5, giving me a cost of $150,000 in employee turnover last year. Does that seem more in line to you?
Thanks for any help on this!
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BobGately
Joined: Dec 25, 2001
Posts: 995 | Posted: 2002-07-18 08:40
Line 1 = 20 = # of replaced employees
Line 2 = 100 = total # of employees
Line 3 = $30,000 = avg. annual salary
Line 4 = 1.25 (as indicated by chart)
Line 5 = 20%
Line 6 = $750,000!
>The total salaries of those 20 employees for the entire year only total $600,000.<
Yes, that is correct.
>This can't be right, even if you figure the additional cost of benefits at 40%.<
Like I said, "Most managers are surprised when they calculate their total cost of replacing employees..."
>Also, line 5 never gets figured in.<
Correct it is just the turnover rate.
>How does line 5 figure in the equation?<
It doesn't, it is for reference only.
>And further, on line 5, I don't understand the point of multiplying times 100%. 100% is the same as multiplying by one, isn't it? Or am I misapplying the equation?<
(Line 1)/(Line 2) = 0.20 so we must multiply it by 100% to get 20%.
>Perhaps I should then multiply the 750,000 by the 20% of line 5, giving me a cost of $150,000 in employee turnover last year. Does that seem more in line to you?<
The cost of replacing an employee is from 1.25 to well over 200% of annual salary. The lowest multiplier we have had reported to us is 124% for a position that pays only $9.44 an hour. Could be less for positions that pay less, perhaps.
Bob
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nork3
Joined: Feb 12, 2002
Posts: 3876 | Posted: 2002-07-18 09:12
I'm thinking that the formula is taking into account either very general assumptions or faulty assumptions.
Specifically, the annual salary of the persons being replaced. While I can understand that replacing costs dollars in recruiting expenses, training and some lowered productivity for the first 6 months or so, I don't think this lowered productivity would extend the entire year. In many cases, jobs paying under 40K per year can be learned quite quickly.
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BobGately
Joined: Dec 25, 2001
Posts: 995 | Posted: 2002-07-18 10:20
The multipliers are from employers who have used the "Business Costs and Impacts of Turnover" Excel workbook to actually calculate what it cost to replace their employees. The cost is far more than most managers realize.
Bob
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Detta
Joined: Jul 13, 2002
Posts: 11 | Posted: 2002-07-18 12:37
Wow. This has been quite illuminating. I do have a boss who is usually quite skeptical, so I very much appreciate the reference to the "Business Costs and Impacts of Turnover" Excel workbook. You wouldn't happen to have a quick recommendation on where I could get a hold of that, would you?
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BobGately
Joined: Dec 25, 2001
Posts: 995 | Posted: 2002-07-18 12:55
Did you recieve the two emails I sent you with spreadsheets attached?
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Detta
Joined: Jul 13, 2002
Posts: 11 | Posted: 2002-07-18 14:38
Oh, they would have gone to my home email rather than here at work. I usually do this kind of stuff from home. I'll check them tonight. Thanks!
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BobGately
Joined: Dec 25, 2001
Posts: 995 | Posted: 2002-07-19 08:12
One user of the "Business Costs and Impacts of Turnover" workbook used it to justify to the court a fee of 3 times annual salary as the cost to buy out a new hire from a "not to compete" agreement he had signed with his former employer. The former executive had an annual salary well in over $100,000.
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Reccos
Joined: Jul 19, 2002
Posts: 68 | Posted: 2002-07-19 09:26
Although I don't doubt the turnover costs suggested, I would be interested in an explanation of the logic behind the formulas suggested.
The point that jobs under $30,000 are often learned quickly is a good one, however, I am not 100% certain that this isn't accounted for in the formula.
The only way that costs may not be that great is in situations where the person in the position is simply deadwood and isn't performing work of value.
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BobGately
Joined: Dec 25, 2001
Posts: 995 | Posted: 2002-07-19 13:18
>Although I don't doubt the turnover costs suggested, I would be interested in an explanation of the logic behind the formulas suggested. <
A rule of thumb only to be used as a guideline until you calculate your own cost of replacing an employee.
>The point that jobs under $30,000 are often learned quickly is a good one, however, I am not 100% certain that this isn't accounted for in the formula.<
It is.
>The only way that costs may not be that great is in situations where the person in the position is simply deadwood and isn't performing work of value.<
It is replacement costs and for the deadwood the replacement cost would be a lot less.
Bob
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nankole
Joined: Jul 22, 2002
Posts: 5 | Posted: 2002-07-22 00:53
Can you please help me with a sample of a succession Plan (Policy statement & Procedure)
Thanx
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nankole
Joined: Jul 22, 2002
Posts: 5 | Posted: 2002-07-22 04:17
[quote]
On 2002-07-18 10:20, BobGately wrote:
The multipliers are from employers who have used the "Business Costs and Impacts of Turnover" Excel workbook to actually calculate what it cost to replace their employees. The cost is far more than most managers realize.
Bob
Wow. This has been quite illuminating. I do have a boss who is usually quite skeptical, so I very much appreciate the reference to the "Business Costs and Impacts of Turnover" Excel workbook. You wouldn't happen to have a quick recommendation on where I could get a hold of that, would you?
[/quote]
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Nida
Joined: Jul 23, 2002
Posts: 1 | Posted: 2002-07-23 00:54
I think the formula is very interesting, but I do not understand how it is related to the
"Business Costs and Impacts of Turnover" workbook.I will appreciate if you could also email the excel workbook to me.
Thanx!
email: nida.haider@allianz-efu.com
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