17 May A Step-by-Step Guide to Calculating Turnover
Calculating turnover is important for developing retention strategies and supporting a strong company culture. To begin calculating turnover in your organization, select a benchmark job to validate internal and external metrics. The position you choose should be a job that would hinder success if significant turnover occurred. It could be one that experiences frequent turnover; in healthcare, for instance, this could be a nursing position. Or, it may be one that is especially costly to replace, such as an IT director.
Once you’ve chosen a position, you can then begin analyzing cost factors. Here is an example of the cost factors you might look at for the role of Accountant 1:
- All Accountant 1’s annual average total cash compensation and benefits: $74,000
- All positions’ annual average total cash compensation and benefits: $81,000
- Projected exits for Accountant 1 this year: 5
- Annual revenue/number of FTEs: $400,000
- Separation cost: $1,000
- Acquisition cost for one new employee: $3,000
- Placement costs: $4,000
- Average number of days position is open: 25
- Number of days for employee to become productive in job: 30
- Number FTE workdays per year: 240
Then, you can calculate the gross lost productivity using the following steps:
- Determine the daily revenue attributed to each employee:
$400,000 EE revenue/240 workdays = $1,667 per day
- Compare the average annual total cash compensation and benefits of Accountant 1 ($74,000) to that of all positions ($81,000)
$74,000/$81,000 = .91
- Determine daily revenue attributed to an Accountant 1
$1,667 employee daily revenue x 0.91 = $1,517
- Calculate total gross lost productivity by multiplying the number of days for Accountant 1 to become productive by the daily revenue attributed to an Accountant 1
$1,517 daily revenue x 30 days = $45,510
Thus, for a vacant Accountant 1 position, you can see that the total gross lost productivity amounts to $45,510 in this scenario.
Of course, while the position is vacant, the organization does not pay compensation and benefits. Thus, to calculate the total net lost productivity, you can perform the additional steps:
- Determine total cash compensation & benefits saved per day during vacancy.
$74,000/240 days = $308.33/day
- Multiply daily amount saved by number of days vacant.
$308.33/day x 25 days = $7,708
- Subtract total cash compensation and benefits saved from total gross lost productivity.
$45,510 – $7,708 = $37,802
The total net lost productivity for the vacant Accountant 1 position is therefore $37,802 in this example. However, if you add the costs of separation ($1,000), acquisition ($3,000), and placement ($4,000) to that figure, the total cost of turnover for an Accountant 1 becomes $45,802. If there are five projected Accountant 1 exits during the year, turnover in the position is projected to cost $229,010.
If you could reduce the turnover for this position by 20% in this scenario, you could save the company $45,802. Reducing it by 50% would save $114,505 annually!
Once you have assessed turnover for one position, you can repeat the process to calculate the total cost of turnover for each position, department, and ultimately, for the organization overall.
Clearly, calculating the cost of turnover can yield eye-opening insights. When communicated effectively to leadership, these insights can be used to support a compelling argument for change.
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