Turnover is often a major roadblock for productivity and delivering for customers.
Imagine your company is experiencing a lot of turnover for various reasons. What is your immediate response? It's probably to hire more and fill those empty positions. After you hire additional headcount, how do you get the new hires up to speed? Most likely, you will have your top performers train them. Seems like a quick and easy fix… right? Well, at analytic.li we know that’s not the case.
What we often see is that by hiring more to solve for turnover, you in turn negatively impact your productivity. What happens to your top performers when they spend half of their day training? They don’t have as much time to hit production goals. They also have to work overtime hours to make up for lost production. Soon enough they become at risk for burnout. And next week, the cycle repeats itself.
Avoiding the never-ending cycle of high turnover and low productivity can be a challenge. So today, we’re going to dive into turnover, the cost of turnover, and how to reduce turnover.
What is turnover?
Turnover is the percentage of workforce that has departed the organization during a period of time. A stable turnover percentage allows an employee to plan for general replacement efforts, while an irregular spike may indicate a specific problem that needs attention.
The calculation itself is always some variant of Terminations ÷ Workforce. Terminations are fairly straightforward. Most organizations use the termination date as the point of termination and would expect anyone with a termination date inside of a period to be considered terminated in that period. The trick is that this is typically the last day of employment, so benefit and pay eligibility are still calculated for that day. For the purpose of turnover, we consider an individual's employment status to be "terminated" and not "active" on the termination date. Anyone with a termination between the start and end of a period (inclusive of those dates) counts toward the numerator in the formula.
Cost of Turnover
Let’s say in a 12-month period, a company had 50 terminated employees. If those 50 employees averaged $60,000 per year the cost of turnover could be up to $1.5 million. If the company reduced turnover by 20% or down to 40 terminated employees per year, they could save up to $300,000 a year.
When thinking about the cost of turnover, first ask yourself:
- What is the most common reason for turnover? Is it preventable?
- What is the cost of a bad hire?
- What is the cost of a termination?
- What is the cost of overtime?
How easy is it for you to come up with those numbers? Do you know your average turnover percentage year over year, or month over month? Finding the answers to these questions is imperative in reducing your turnover overall. The cost of a bad hire is typically tens of thousands of dollars when you add up recruiting, training, production, and retention. It is important to keep employees happy and enable a positive work environment, which can in turn keep turnover rates low and improve retention.
The goal here is not to have a turnover percentage of 0. But it is important to maintain a consistent and predictable turnover percentage that is easily monitored so HR and managers can be proactive when building staffing plans, production plans and budgets.
Your productivity is at risk in the areas you have the highest rates of turnover. Do you know which departments have the highest turnover? Is it because of a manager or compensation?
Hiring new employees to make up for turnover can greatly decrease productivity. When you hire new people, not only does it take time to get new employees up to speed to hit productivity goals, it also takes time away from productive employees who have to train new employees.
Productivity is a key factor to success for all businesses. Not hitting productivity goals can then turn into additional efficiency problems and eventually lead to not being able to meet a customer’s needs. Unhappy customers equal less orders and decreased revenue.
Along with productivity, overtime must be monitored in accordance with turnover. Overtime can come in two aspects. The first is due to low headcount. The second is due to training. Overtime can add up quickly and must be monitored.
While not all overtime is bad, some overtime, especially when it leads to burnout, is not good. It is important to monitor top performer’s overtime hours. If each top performer is working 5 hours of overtime to hit production goals, it can add up quickly.
Additionally, top performer’s that are forced to work overtime and train new employees constantly can lead to low employee satisfaction. What does low employee satisfaction lead to? You guessed it… more turnover.
If you’re not carefully monitoring turnover and overtime together, it could be easy to miss the early warning signs of unsatisfied employees. It becomes an endless cycle of overtime, burnout, dissatisfaction and turnover.
Another cost of turnover is safety. Burnt out employees often have the most safety incidents. If they are tired and overworked, they might not be in the right mindset to do the work safely or accurately. Seasoned employees can prevent incidents and accidents, but when they become overworked it can be dangerous.
On the flip side, new employees are also at a higher risk for safety incident. If new employees aren’t properly trained and used to specific safety procedures, it is more likely than an incident will occur.
To reduce turnover, first ask yourself:
- Why do people leave?
- When do people leave?
- What is the most common reason for turnover? Is it preventable?
- Am I compensating to drive results?
- Does our benefits package stand up to competition in the market?
- Am I aggressively using temporary workers to cover for a reduced workforce? Overtime? What is the cost of carrying temporary workers until a job position is filled?
With analytic.li, it is easy to monitor and mitigate turnover. You can build visuals and custom dashboards by product line, department, manager and even shift.
It is important to first understand when and why people are leaving. Oftentimes people leave due to a bad manager or compensation. It is also important to look at voluntary and involuntary turnover. Is your turnover caused by bad hires or unhappy employees? Both issues must be addressed to prevent avoidable turnover.
Decreasing turnover improves productivity. At the end of the day, monitoring turnover is not just about lowering costs, it is about consistently producing the highest quality product and delivering for customers.
That's Why We're Here
At analytic.li, we uniquely understand the need for manufacturers and distributors to actively monitor turnover and productivity.
With our first-ever, cross-functional labor efficiency and worker productivity platform we break down data barriers and organizational barriers to set up operations managers for success. This means businesses can arm their leaders with real-time insights by alerting leaders in all departments of staffing shortages, labor overages, and productivity trends to better manage their organizations.
If you’d like to learn more about ways to impact turnover or discuss how analytic.li will work for your organization, reach out to us. We’re eager to connect with you. If now is not the time to consider new software but you liked what you read here, subscribe to our blog below.