The High Cost of Turnover

We tend to think about the cost of turnover only in terms of the money invested in recruitment ads and the time spent in the interview and the hiring processes. However, this cost goes beyond that.

• Many things are financially impacted by turnover but business owners and franchisees don't usually notice how the dollars add up every time an employee quits.

In this blog post, we'll go over the high cost of turnover and how it impacts the overall business. Not only that. We'll review how to calculate this hidden cost so you can begin to reduce turnover.

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How much is turnover costing your business?

These are some of the concepts that are impacted every time you lose an employee:

• Recruiting ads. Running ads repeatedly to find the right people for your franchise business can be very costly.
• Recruitment and interview time. Instead of running and managing the franchise units, managers spend their time analyzing profiles, interviewing the candidates, and completing all the legal documentation once the hiring is official.
• Onboarding fees. Even if you have a very simple onboarding program, you are investing money and time to make the new employees feel welcome.
  This cost includes the development of the program, all the documents you have to complete, as well as the person who conducts the orientation.
• Uniform. Every time you have new employees, you have to supply them with uniforms to have an institutional brand image.
• Training. As soon as new team members are hired, they need to be trained. Not only in what they are going to do but also in as many positions as possible.

Don't miss: Training is expensive! But lack of it costs more

• Training materials. At a minimum, you'll be providing the newly hired team member with an employee handbook. In some franchises, the employee receives their own training materials, especially managers.
• Waste. While employees are trained, they will use products to practice. Many of those will probably have to be thrown away because apprentices tend to make mistakes. 
• Sales. During this training period, the new employee could make other errors, reducing efficiency and potentially resulting in customer dissatisfaction. This can cause lower sales.
• Labor costs. All of the employee's labor costs during onboarding, training, and the first few days can be considered a cost. Think about it! Since they are still learning, they are not fully efficient yet and others would have to do their job until they can work independently.
• Team mood. Every time an employee quits there's an imbalance in the team and everyone is affected by the change. This has a higher impact if the ex-collaborator was truly appreciated by their peers.

As you can see, turnover can have a high cost and become a real problem for your business' financial health.

That's why, as a business leader, you have to do everything in your power to keep turnover costs as low as possible, not only to save those expenses but also to maintain a team's positive mood and generate satisfied customers every day.

Calculate staff turnover

It's important to know your turnover rate and measure it each month to make this hidden cost visible in your financial statement. Having this clarity will help you evidence how much turnover is costing you because if you don’t see it, you won't be able to improve it.

Use this formula to calculate your monthly turnover percentage:

   Number of employees at the beginning of the month
+ Number of hired employees
-  Total employees at the end of the month
/  Number of employees at the beginning of the month
x 100

Keep learning how to calculate the costs of turnover in this blog post!

Now that you know how to calculate your turnover, compare your business to the rest of the industry to determine how much you need to improve your turnover percentage:

• The average staff turnover in the food industry is 100 to 150% per year.
• For assistants and general managers, the average turnover is between 50 and 75%. If your employees have reached that level, they are less likely to leave.

The franchise industry is more than anything, a people's business. Hiring and retaining the best people is one of the reasons why the best franchisees make huge profits.

• If you find this top talent, care for them, and empower them to grow, they will stay with you to help you grow your business!

If you would like to learn more about how to find the right people for your franchise, explore the training and development programs that the American Franchise Academy has to offer.

We have training programs for unit managers, district managers, and for developing multi-unit franchisees and we can help them achieve their highest potential.

Learn more about these programs here!

Reflections:

• Are you aware of the turnover rate in each of your stores and how much it is costing you? 
• What can you do to improve your hiring and retention processes?
• Why are your employees resigning? 
• How much money are you investing in retaining your people?