How to Calculate the Cost of Turnover to Combat Voluntary Resignation Reasons

Turnover is the strongest signal you get from your workforce. Someone worked here, and — for one reason or another — it didn’t work out. Voluntary termination of employment is a major event, and you need to pay attention to the reasoning (and the data) to help you with employee retention.

While some degree of turnover is inevitable, the high cost of losing an employee can have a major impact on your bottom line. So, how do you calculate voluntary termination, and what can you do to combat it? Let's take a closer look.

How to Calculate the Cost of Turnover

There are a number of ways for calculating the cost of turnover. The most common (but less accurate method) is to multiply the average salary of the position by the number of separations. 

For example, if you have 10 employees who make an average salary of $50,000 per year and five resign, the turnover cost would be $250,000 ((10 x $50,000) / 2).

However, this method needs to take into account the time it takes to find and train replacement employees. A more accurate way to calculate the cost of turnover is to use a formula that factors in recruiting costs, training costs, and lost productivity. Using this formula, the cost of turnover for our example above would be closer to $37,500
(((10 x $50,000) + ($5,000 x 10)) / 2). 

The ability to calculate voluntary attrition internally will bring a new dimension to your leadership team. However, these benchmarks serve as a baseline for your turnover calculator as there are several other variables and data points to consider, including:

• Daily rate of the hiring manager’s salary
• Estimated hours spent interviewing and screening resumes
• Estimated cost of advertising for the available position
• Daily rate of departed employee’s salary plus benefits
• Number of days the position will remain open before you rehire
• Cost to conduct a background check
• Daily rate of the hiring manager’s or trainer’s annual salary
• Total days the hiring manager or trainer will spend with new employee
• Number of working days in the new hire’s onboarding period

It’s also important to factor in position levels. The Center for American Progress (CAP) found that the cost of staff turnover was, on average, 213% of the annual salary for highly-skilled employees. Segment the positions into three different salary levels for a more accurate turnover calculator: average entry level, average mid-level, and average technical salaries.

Tracking Voluntary Attrition Over Time

The simple truth is that you will not get a full picture of what is happening from a single calculation. It can be time-consuming to calculate on a consistent basis over time manually. You need to see the trends.

Create a storyboard to see if trends emerge. You can break down the involuntary and voluntary attrition rate by business unit, location, and organization tenure groupings. You can also quickly see at a glance how turnover rates are changing, where they are high, and whether it’s you or the employee forcing the change.

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You Know How to Calculate Churn Rate of Employees and Turnover Cost — Now What?

Now that we know how to calculate the cost of turnover let's look at how you can mitigate voluntary attrition in your organization.

Use One AI Recipes to Predict Trends and Make Proactive Changes

You know the “What” but you really need to know the “Why”. So, run a predictive model on that data to pull out the correlations and understand the why behind the attrition.

One AI Recipes will help you predict the likelihood of a person in a selected population voluntarily terminating within a specified period of time. To do this, One AI will consider a number of attributes and will train the model on the population at a defined point in the past.

Does distance to the office, time since last promotion, or paid sick leave correlates to a rise in attrition? AI is a tool that helps you make connections and better understand voluntary resignation reasons in order to take specific actions leading to improvement. 

Improve Hiring Practices

Poor hiring practices could easily be one of the reasons why your voluntary attrition rate is high. Be sure to clearly define the skills and experience required for each position and only interview candidates who meet those criteria. Conduct thorough reference checks, and don't hesitate to pass on a candidate if there are any red flags. After analyzing your hiring process, you can incorporate the proper people analytics data to produce the most accurate cost of losing an employee.

Promote from Within

Another great way to reduce turnover is to promote from within whenever possible. Not only does this show your employees that there are opportunities for advancement within your company, but it also helps reduce training costs because you already have someone on staff who knows your company culture and how things work. 

Invest in Employee Development

Finally, investing in employee development is a great way to reduce turnover rates. Employees who feel like they are learning and growing in their roles are more likely to stick around. Offer professional development opportunities through tuition reimbursement programs or paid memberships to professional organizations. 

Final Thoughts on How to Calculate the Cost of Turnover

Sure we want to understand how much it costs the company. That is the first step in getting leadership to care. However, the real work begins when you understand why people are leaving and can build a plan to curb the costs. People analytics offers real-time labor market intelligence to help businesses identify pain points causing turnover. And considering the high cost of losing an employee and its impact on your bottom line, employee retention is critical in today’s economy.

One AI Recipes make creating a predictive model from your people data as easy as choosing the outcome you want to predict and answering a series of questions about the data you want to leverage to make the predictions. The result is a predictive model based on robust, clean, and adequately structured data — all without engaging a data engineer or data scientist.

Calculating turnover is the first step toward helping you understand and predict trends, reduce turnover rates, and keep your business running smoothly.

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