Send to KindleWhat is your company paying for employee turnover? Often senior leadership doesn’t give much attention to turnover at the lower levels, but they should because it’s costing the company a lot of money.
Let’s say your company pays associates $8 per hour. Let’s further assume the associates average 30 hours per week. Doing the math, that means $12,480 per year for one associate. Of course that’s just salary and doesn’t include any other benefits or bonuses you pay. But we’ll use the $12,480 as an annual expense for one part-time employee. Now let’s assume you have 30 associates in an average store. That means your base cost for labor in that store is $374,400 per year. Naturally, there are a lot of variables, like part-time versus full-time, individual pay scales, temporary holiday help, and others. But for the purposes of argument, we’ll use this figure.
Now, consider two factors impacting employment decisions. First, it costs anywhere from 50% to 150% of an employee’s annual salary to replace them. That’s a wide range because there are several variables involved. One of those that many leaders fail to consider is the cost of lost sales and production resulting from an experienced worker who must take time to train yet another new associate. To be conservative, we’ll use a 50% cost.
The second factor affecting employment decisions is the turnover rate. In retail that rate ranges from about 75% to as much as 110%. In the current economic climate, it’s been closer to the lower number so we’ll use that. Rounded down, that means of the 30 associates in the store, you will have to replace 22 of them each year. So, 22 associates times $12,480 per associate is $274,560, or a 73% increase in your labor cost! Now, here’s the kicker. What’s your margin? How much more will you have to sell to increase your intake by enough to cover that increased cost? Oh yea, you also need to multiply $274,000 by the number of stores the company operates. And, you’re going to make up that additional cost with a workforce on the floor that is perpetually 75% new people.
Hopefully those numbers have captured your attention because you need to consider one more question. Why is your turnover so high? It’s costing you a lot of money, so you probably should be trying to answer that question. Here’s a suggested answer: your store management staff is probably working to help employees decide to quit. No, it’s not usually intentional and of course not all managers are bad leaders, some are quite good. But for the most part, store managers have not learned the techniques of good leadership. Why?
Research by the Gallup organization revealed that three fourths of the employees who quit their jobs did so for reasons that are influenced by managers! Amazing! Often the root cause is managers who get little or no training in the art of leading people.
When you put it all together it seems to indicate that when managers are not taught basic leadership concepts labor costs can significantly increase. Does this describe your company?
