In our previous post, we covered some of the costs associated with Employee Attrition. Today, we will discuss in more detail some of these costs:
- Recruitment Costs
- Training Costs
- Lost Productivity Costs
- New Hire Costs
- Lost Sales Costs
- The cost of advertisements (from a $200.00 classified to a $5,000.00 or more display advertisement); agency costs at 20 – 30% of annual compensation; employee referral costs of $500.00 – $2,000.00 or more; internet posting costs of $300.00 – $500.00 per listing. Talk to your Staffing Team and determine what costs are being incurred to hire your open positions.
- The cost of the recruiter’s time to understand the position requirements, develop and implement a sourcing strategy, review candidates backgrounds, prepare for interviews, conduct interviews, prepare candidate assessments, conduct reference checks, make the employment offer and notify unsuccessful candidates. This can range from a minimum of 30 hours to over 100 hours per position. Now, what’s the cost of the internal or external recruiter fulfilling these roles for you?
- Calculate the cost of a recruiter’s assistant who will spend 20 or more hours in basic level review of resumes, developing candidate interview schedules and making any travel arrangements for out of town candidates. How much more are you spending for these tasks? If no assistant is involved, then how much more time is the recruiter spending on these tasks?
- The cost of the hiring department (immediate supervisor, next level manager, peers and other people on the selection list) time to review and explain position requirements, review candidates background, conduct interviews, discuss their assessments and select a finalist. Also include their time to do their own sourcing of candidates from networks, contacts and other referrals. This can take upwards of 100 hours of total time for a single position.
- Calculate the administrative cost of handling, processing and responding to the average number of resumes considered for each opening at $1.50 per resume. How many resumes are they receiving for the open positions?
- Calculate the number of hours spent by the internal recruiter interviewing internal candidates along with the cost of those internal candidates to be away from their jobs while interviewing. Many contact centers use front line supervisors to interview candidates. What is the cost of this practice?
- Calculate the cost of drug screens, educational and criminal background checks and other reference checks, especially if these tasks are outsourced. Don’t forget to calculate the number of times these are done per open position as some companies conduct this process for the final 2 or 3 candidates. If you are hiring a class of 20 new hires, then your costs are significantly higher. What’s the total cost per employee?
- Calculate the cost of the various candidate pre-employment tests to help assess a candidates’ skills, abilities, aptitude, attitude, values and behaviors. If you aren’t using a pre-evaluation test, then you are probably spending more money on interviews or overall attrition. Is your employee evaluation EEOC certified? What would be the cost of a lawsuit to defend your evaluation if it’s not EEOC certified? Significant amounts of money have been spent defending these types of lawsuits.
- Calculate the cost of orientation in terms of the new person’s salary and the cost of the person who conducts the orientation. Also include the cost of orientation materials.
- Calculate the cost of departmental training as the actual development and delivery cost plus the cost of the salary of the new employee. Note that the cost will be significantly higher for some positions such as sales representatives and call center agents who require 4 – 6 weeks or more of classroom training.
- Calculate the cost of the person(s) who conduct the training.
- Calculate the cost of various training materials needed including company or product manuals, computer or other technology equipment used in the delivery of training.
- Calculate the cost of supervisory time spent in assigning, explaining and reviewing work assignments and output. This represents lost productivity of the supervisor. Consider the amount of time spent at 7 hours per week for at least 8 weeks.
As the new employee is learning the new job, the company policies and practices, etc. they are not fully productive. Use the following guidelines to calculate the cost of this lost productivity:
- Upon completion of whatever training is provided, the employee is contributing at a 25% productivity level for the first 2 – 4 weeks. The cost therefore is 75% of the new employees full salary during that time period.
- During weeks 5 – 12, the employee is contributing at a 50% productivity level. The cost is therefore 50% of full salary during that time period.
- During weeks 13 – 20, the employee is contributing at a 75% productivity level. The cost is therefore 25% of full salary during that time period.
- Calculate the cost of coworkers and supervisory lost productivity due to their time spent on bringing the new employee “up to speed.”
- Calculate the cost of mistakes the new employee makes during this elongated indoctrination period.
- Calculate the cost of lost department productivity caused by a departing member of management who is no longer available to guide and direct the remaining staff.
- Calculate the impact cost on the completion or delivery of a critical project where the departing employee is a key participant.
- Calculate the cost of reduced productivity of a manager or director who looses a key staff member, such as an assistant, who handled a great deal of routine, administrative tasks that the manager will now have to handle.
Administrative New Hire Costs
- Calculate the cost of bring the new person on board including the cost to put the person on the payroll, establish computer and security passwords and identification cards, business cards, internal and external publicity announcements, telephone hookups, cost of establishing email accounts, costs of establishing credit card accounts, or leasing other equipment such as cell phones, automobiles, pagers.
- Calculate the cost of a manager’s time spent developing trust and building confidence in the new employee’s work.
Lost Sales Costs
- For sales staff, divide the budgeted revenue per sales territory into weekly amounts and multiply that amount for each week the territory is vacant, including training time. Also use the lost productivity calculations above to calculate the lost sales until the sales representative is fully productive. Can also be used for telemarketing and inside sales representatives.
- For non-sales staff, calculate the revenue per employee by dividing total company revenue by the average number of employees in a given year. Whether an employee contributes directly or indirectly to the generation of revenue, their purpose is to provide some defined set of responsibilities that are necessary to the generation of revenue. Calculate the lost revenue by multiplying the number of weeks the position is vacant by the average weekly revenue per employee.
Calculating and adding all these costs, given our original example of the $50,000 person can easily reach $75,000 to replace them. As you can see, the costs and impact associated with an employee who leaves the company can be quite significant. This is not to say that all turnover should be eliminated. However, given the high cost and impact on running a business, a well thought-out program designed to retain employees may easily pay for itself in a very short period of time.
If your contact center or organization is struggling with employee attrition, then we have a diagnostic tool to help you understand why attrition is negatively impacting your organization. Contact us about using D.I.AL.O.G. to help you. Here’s a link to more information about the D.I.AL.O.G. tool:
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If you are like most contact center leaders, then you know the pain of employee turnover. Do you know the REAL cost of your employee attrition? I’m not talking about the number someone from Finance provided you years ago. I’m talking about calculating the REAL cost to your business today. The following information is designed to help you identify these costs and develop a plan to reduce these costs.
The comprehensive checklist is designed to be used with any organization. I have also attempted to make this as easy as possible for those of you scared of the math. So, don’t be scared, keep reading.
You may need to add or remove some of these items to your formula. To determine the costs, have the hourly and weekly cost of fully loaded payroll costs (salary plus benefits) of the vacant position, the management staff, the recruitment staff and others as outlined below.
It should be noted that the costs of time and lost productivity are no less important or real than the costs associated with paying cash to vendors for services such as advertising or temporary staff. These are all very real costs to the employer.
These calculations will easily reach 150% of the employee’s annual compensation figure. The cost will be significantly higher (200% to 250% of annual compensation) for managerial and sales positions.
To put this into perspective, let’s assume the average salary & benefits of employees in a given contact center is $40,000 per year. Taking the cost of turnover at 150% of salary, the cost of turnover is then $60,000 per employee. For the mid-sized contact center of 200 employees with a 50% annual rate of turnover, the annual cost of turnover is $6 million!
We all know you will never remove all your employee attrition because some attrition is necessary. Let’s say you reduce your attrition from 50% (a relatively low number for most contact centers already) to 30% annual attrition. The cost savings using the numbers in our example are still a staggering $3.6 million. Do you know any contact center leader who would not want to add $3.6 million to their budget? And, by the way, most of that figure would be carried over to the profit line!
What about the contact center with 500 employees and an average employee salary & benefits of $50,000, with annual attrition of 100%. Sound familiar? The cost of turnover equals $37.5 MILLION! Let’s say you improve your employee attrition from 100% turnover to 80% turnover. The 25% reduction in attrition equals $7,500,000 in real profit improvement. YES…$7.5 MILLION more in the bottom line.
So, what are YOUR real employee attrition costs? Here are some of the items you need to include in your calculation:
- Calculate the cost of the person(s) who fills in while the position is vacant. This can be either the cost of a temporary or the cost of existing employees performing the vacant job as well as their own. Include the cost at overtime rates.
- Calculate the cost of lost productivity at a minimum of 50% of the person’s compensation and benefits cost for each week the position is vacant, even if there are people performing the work. Calculate the lost productivity at 100% if the position is completely vacant for any period of time.
- Calculate the cost of conducting an exit interview to include the time of the person conducting the interview, the time of the person leaving, the administrative costs of stopping payroll, benefit deductions, benefit enrollments, COBRA notification and administration, and the cost of the various forms needed to process a resigning employee.
- Calculate the cost of the manager who has to understand what work remains, and how to cover that work until a replacement is found. Calculate the cost of the manager who conducts their own version of the employee exit interview.
- Calculate the cost of training your company has invested in this employee who is leaving. Include internal training, external programs and external academic education. Include licenses or certifications the company has helped the employee obtain to do their job effectively.
- Calculate the impact on departmental productivity because the person is leaving. Who will pick up the work, what work will suffer, what departmental deadlines will not be met or delivered late. Calculate the cost of department staff discussing their reactions to the vacancy.
- Calculate the cost of severance and benefits continuation provided to employees who are leaving that are eligible for coverage under these programs.
- Calculate the cost of lost knowledge, skills and contacts that the person who is leaving is taking with them out of your door. Use a formula of 50% of the person’s annual salary for one year of service, increasing each year of service by 10%.
- Calculate the cost impact of unemployment insurance premiums, as well as, the time spent to prepare for an unemployment hearing, or the cost paid to a third party to handle the unemployment claim process on your behalf.
- Calculate the cost of losing customers the employee is going to take with them to their new position or the amount it will cost you to retain the customers of the sales person, or customer service representative who leaves.
- Subtract the cost of the person who is leaving for the amount of time the position is vacant.
These REAL costs will help you determine your TRUE costs of employee attrition. If you would like to use a simple calculator to help you, theUniversityofWisconsin Extension Officeoffers the calculator at the below link:
Our next BLOG will address more specifics about the costs of employee turnover including recruitment, training, productivity, new hire, and opportunity costs. If you know YOUR employee attrition is out of control, then contact us NOW to schedule a time to discuss our diagnostic tool to measure your concerns.
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