Turnover of employees is expensive and far more costly than many small business owners recognize.
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In 2016, the Society for Human Resource Manager (SHRM) calculated the cost per new hire at $4,129 with an annual workforce turnover rate of 19 percent. SHRM’s research also revealed the average time it takes to fill a given position is 42 days.
What this means for the average small business with 19 employees or 97.7 percent of all U.S. businesses, then your small business will have a turnover of three employees per year. This employee turnover is costing your small business a minimum of $12,000.
The hospitality industry including casinos, for example, has high workforce turnover as do some local to county government departments. How many small business owners are always seeking new salespeople?
Now some will suggest monetary rewards are the reason for this constant churning of employees. That’s possible in some instances, yet there are probably other factors to consider.
Years ago I heard this quote: “People do not leave companies, they leave managers.” Possibly poor or ineffective leadership respective to those in management positions is a reason for employee turnover.
In “Fail-Safe Leadership: Straight Talk About Correcting the Leadership Challenges In Your Organization,” authors Linda L. Martin and Dr. David G. Mutchler provide some conditions suggesting the existence of leadership problems. These conditions included but not limited to:
*Excessive meetings
*Cover your behind mentality
*Meaningless performance appraisals
*Communication problems
*Unacceptable results
H*igh staff turnover
*Consistent poor sales growth
The majority of problems in any organization can be traced back to executive leadership. Possibly the leadership has been too involved as Gerber wrote in the “E-Myth” or not involved enough.
Peter Drucker in his book “Managing in a Time of Great Change” shared what he believed to be the five deadly business sins. The first three sins revealed the focus on profit and pricing. Sin Four, “slaughtering tomorrow’s opportunity on the altar of yesterday,” and Sin Five, “feeding problems and starving opportunities,” both are reflected in the rush to focus on monetary rewards.
Now with multiple generations in the workforce understanding rewards becomes far more essential. Employment research conducted in the United Kingdom found 62 percent of the millennials surveyed wanted to work for a company that makes a positive impact while 50 percent preferred purposeful work to a high salary.
This research and other research continue to suggest monetary rewards are not the answer to high turnover. Possibly now is the time to rethink why your small business or even larger organization is experiencing turnover. If the cost of a new hire is $4,000, that $4,000 is 100 percent profit because the new hire has not produced any results. How many $4,000 hits to your bottom line can you afford?
Leanne Hoagland-Smith is an author, speaker and executive coach. Her weekly column explores issues that impact the bottom line of firms with fewer than 100 employees. She can be reached at 219-508-2859.