To understand why employee experience investments are valuable, you must first understand the actual costs of turnover.
Without a baseline metric for employee turnover, it can be difficult to demonstrate the impact of your employee experience initiatives. Our team created a turnover reduction calculator to help provide organizations an objective justification for their investments in employee experience. It is designed to demonstrate what you could be saving by investing in experience initiatives as a strategic business priority.
A recent study by Ernst & Young found less than half of full-time workers surveyed globally trust their employer. That same study listed “too much employee turnover” as one of the top 10 factors influencing lack of trust. So each time you lose an employee, it doesn’t just impact your organization financially, but it also has a significant impact on those who are still working in your organization.
Quantifying the impact of initiatives designed to nudge the needle on employee engagement is necessary to prove their effectiveness to stakeholders. Beyond employee engagement metrics, turnover and retention rates are some of the most widely available metrics to indicate the impact of employee experience initiatives. Our turnover reduction calculator will take your company’s metrics, along with employee engagement data to give you an idea of how much turnover is costing your company and how investing in your employees can save you money.
To begin to quantify the financial impacts of employee turnover for your organization, you’ll need to know the total number of employees in your organization and your annual turnover rate. You will also need the average cost of hiring a new employee for your organization.
If you don’t have the specific costs of hiring a new employee for your organization, a study by the Center for American Progress states the typical (median) cost of turnover is 21% of an employee’s annual salary. However at the senior or executive levels, those turnover costs can rise to 213%. If you take your average employee salary and multiply it by .21, you’ll get a modest baseline metric for the average cost of hiring a new employee for your specific organization.
Why do we say “modest?” With today’s low unemployment and high competition for talent, it can cost more than 21% of the average salary for many positions, especially if it is a highly specialized position or it takes months to fill the position after an employee leaves. If you want to customize the turnover cost for your company, we recommend using SHRM’s Turnover Cost Calculation Spreadsheet.
Once you’ve determined the cost of turnover for a single employee, it’s time to put a number on the average annual cost of turnover for your organization. The top half of our turnover reduction calculator spreadsheet will make these calculations for you.
Our turnover reduction calculator begins by finding how many employees you lose on average each year. For instance, if you have 1,000 employees in your organization and your average turnover rate is 20%, you lose an average of 200 employees each year.
Let’s say the average salary for an employee in your company is $50,000. Using the 21% baseline, that means the average cost of hiring a new employee is $10,500. Multiply that by the number of employees you lose each year and your average cost of turnover is more than $2 million. That number can be shocking if you’ve never calculated the cost of turnover before.
Now imagine what could happen if you can reduce turnover by investing in employee experience initiatives. If you are able to reduce your annual turnover percentage by a few points, you could save thousands. In our example, if you decreased turnover by 2 percentage points to 18%, you could retain 20 more employees each year. That could save your organization $210,000 a year.
According to a Gallup’s State of the American Workforce study, in high-turnover organizations (those with more than 40% annualized turnover), highly engaged business units achieve 24% less turnover. In low-turnover organizations (those with less than 40% annualized turnover), the gains are even more dramatic: Highly engaged business units achieve 59% less turnover.
We based our “Expected Reduction in Turnover With Engaged Employees” figure in the calculator on this Gallup data. The calculator will automatically use Gallup’s data to give you a projection for how investing in initiatives to improve employee engagement can reduce your annual turnover rate. However, if you have a specific goal for an adjusted annual turnover rate, you can place your reduced turnover percentage into our turnover reduction calculator instead of the Gallup data.
Once you’ve filled in our turnover reduction calculator with a few key data points, you will begin to see the savings possible by making employee experience a strategic business priority. This is one way to justify investments in employee experience. When stakeholders see the annual costs of turnover, along with the significant savings decreasing turnover through employee engagement can provide, it creates a tangible justification for investing in employee experience.
See the calculator in action in the video below and download your copy of the calculator here.