Calculate your Turnover, the Highest Hidden Cost in Your BusinessesOct 11, 2022
Turnover is the biggest hidden expense in your business today, especially if you are in the retail and service industries. Why are you not aware of how much it is costing you? Because it is merged into all of the line items and expenses in your profit and loss statements.
- Even though you don't have visibility for it, it is affecting every part of your operations. That’s why turnover has the biggest potential for financial and cultural damage.
With this blog post, I will help you calculate the costs of turnover, walking you through each of the line items that are part of this expense.
Before we start, find a piece of paper and a pencil, or open an Excel sheet, so you can follow the math and understand and be clear on what is the cost of turnover for your organization.
Please note: this calculator is just an approximation of how much it costs to lose one employee in a hypothetical business. You can use this information as a model to calculate your turnover expense based on your actual business numbers.
Every time somebody leaves your organization, you have to spend a certain amount of money to attract and hire new people. To do so, you place an ad, let's say, on Facebook.
The platform charges you $10 a day for a job posting. That means $70 for the week just for Facebook. If you plan to use any other platform, you must add that other cost per day.
The ads paid off and you have four candidates ready to be interviewed. The interviewer's pay is $16 an hour, so the first part of this process will cost you $64.
Since the open position is a manager level and it requires a thorough job, you request a second and final interview for two of the prospects. Again, the interviewer charges $16 an hour, which means an additional $32.
Once you have a finalist, you decide that before you make a job offer you want to do a background check, performed by an external. This is not only going to be online, but they're going to call prior employers as well. This process costs $14 an hour.
Being a good franchisee business owner, your onboarding process takes about 3 hours. During that time, you welcome the employee into the organization, do a walkthrough of the business, introduce them to the rest of the team members, and make them feel confident on their first day.
The new employee salary was set at $12 an hour (you know people are not accepting less than that. So the orientation costs $36.
You must also take into consideration the trainer's salary, whether it’s a manager or an assistant manager. Let's say this team member makes $14 an hour, so that’s a $42 expense.
Based on this, orientation costs $78. (If you are following the math, we are now at $258.)
Your franchise business requires a uniform so you give the new team member the corporate two t-shirts ($10 each), a hat ($7), and a name tag ($2). So, the cost of the uniform is $29.
The next thing you have to do is train the new employee in the tasks and responsibilities they have in their role.
Let’s say the initial training requires 8 hours total, which will be divided into 4 hours each day. So, if they make $12 an hour, that's $96 just for the basic training. The trainer’s salary ($14 an hour) also has to be added to the list, so that’s another $56 just for training this person.
- Remember! This is a simulation. You have to write down how many hours your training takes, and what’s the average salary of the people doing this work. That's how you will know how much turnover costs in your business.
(This part is based on a lot of assumptions because there is no hard way to calculate the cost)
Your franchise is a food service, so you have to use raw materials and real products to train your new employee, so they can learn how to cook the food your menu offers. So, there’s an expense during this time. In this case, the calculation is $25 of waste.
You also have to consider that in the first weeks of this practice process, the person will most likely make mistakes. How many times are they going to make a hamburger or an ice cream the wrong way? This also has to be added to the turnover cost expense.
Again, I put $25 into this item, but you have to think about what is going to be true for your business.
When you have a new employee, you are likely to have a loss of sales. This can happen for many reasons. For example, the new employee doesn't quite know how to properly do your business, how to take care of the customers, or they can’t handle difficulties.
To sum up, the two main reasons would be quality mistakes or service issues. This will cost you, I would say, $200 over the first three months of this new employee.
When you have high turnover, new employees disrupt team members that have already merged. As a consequence, the team morale lowers because they are gossiping and talking about the employee that left.
I quantified the instability of a peer leaving with $100. And an extra $100 because they have a new team member they don’t know.
If you've done the math, the sum of all of these particularities it's $889. That’s $889 every time a person leaves your organization because you have to replace them.
Imagine if you lose 10 people a year! The turnover cost would be almost $9,000 a year!
Now that you know how disruptive this hidden cost is and how much it affects your business, why not spend the necessary amount of time, effort, focus, and money in keeping your employees in place?
- Retention is the best solution because if your employees stay, your business, your team, your customers, and yourself will be better off.
Quantify how much turnover is costing your business. When you are faced with that number, you'll realize how critical it is not only to hire the right people but to inspire your staff and build a positive culture where people don't want to leave.
This will save you money. You can even make a profit out of these staffing strategies. But it all starts by calculating what your turnover is so you can then measure the improvement for the long term. Then, your company will transform.
If you would like to learn more about what it takes to become a successful multi-unit franchisee, you do not want to miss our Multi-unit Franchisee Masterclass.
Register for this workshop to learn what kind of things you can do to have people stay with you. Join us at Multiunitmasterclass.com for free.
I also invite you to listen to our new podcast, Franchise Success Formulas. You can find us on Spotify, and soon we’ll be on iTunes and Google Podcasts.
- Where’s the best platform to look for fresh talent for your organization?
- What would be the ideal training and practice period for your new employee?
- How much money are you investing in retaining your people?
- Is there a way you can stop team morale from going down when an employee leaves and another one enters?
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