HR Interview: The Real World Costs of Turnover (Part 1)

COMPLI: Tell us a little about what you do. To what extent do organizations realize they need HR consulting, versus getting referred to you with little or no idea as to what they’re in for?

DEBI MUCHOW: Off the top of my head, I would say that about 20% of the inquiries I get are from organizations who know what they’re asking for, have done it before and are facing a particular problem they want solved. The other 80% have probably not used these types of services before, and they don’t even think about it. In some cases, they don’t know it exists until they have a problem.

I will say that 60% of the time, the problem they think they have isn’t really the problem

at all—it’s a symptom of what’s going on. Sometimes, they’ll say, “Oh, if we just trained our people better at communication, everything would be fine.” But you do a little bit of research and talk to employees you realize, “No, it’s not the communication on their side; it’s the communication on the leadership side.”

That’s what has held my interest in this field, whether it be inside a corporation or outside on my own: you’re like Sherlock Holmes trying to solve a mystery, and then trying to apply the right solution—that’s the most important piece.

Can you take us through some of the real-world costs of high turnover? How does it affect a dealership’s bottom line?

You need to look at it from what I would call “hard costs”—actual dollars and cents—and “soft costs” to the business, because the soft costs can have other kinds of impact that will hurt the bottom line as well.

For example, from a hard dollar cost perspective, the thinking right now is that it’s going to cost you about 6–9 months of an employee’s salary to find someone new. That’s taking into account the whole recruiting process—training them and getting them up to speed before you’re more or less at where you left off with the last employee. That’s the learning curve piece.

And one thing you want to look at—and this applies to turnover and onboarding—is trying to figure out how to get that person to productivity quickly. In other words, from the day the new person walks into the door, how do you get them up to where they’re producing for you?

Turnover and onboarding go hand in hand. Turnover impacts onboarding. There’s “oh, we have 5 new openings because we’re growing,” and then there is “we have 5 openings because people are leaving.”

On the soft costs side, a lot of mid-sized companies will also incur a cost in productivity of the people who are left when somebody leaves, depending on how long that person was there and the reasons why they’re leaving. Team members may be wondering and worrying about why a person left. A lot of businesses don’t pay attention to that.

When it comes to high turnover, I talk with managers about really understanding why people are leaving, and then what you’re going to do about that. A place that has high turnover has high turnover for a reason. There’s something going on in the organization that is causing dissatisfaction.
So, from a pure numerical standpoint, while your average employee probably costs 6–9 months of their salary to find and train their replacement, a highly trained or specialized employee could take you up to two times that person’s salary to replace them.

Can you talk more about onboarding programs? How can you set your new employees up for success so that they stay longer than perhaps they otherwise would have?

I think the best way to look at onboarding, as well as other components of an employee, is to look at what I call the “lifecycle” of an employee. It starts with recruiting, and then hiring, onboarding, training, additional training, and then what I call the “care” and “feeding” of the employee. While they’re with the company, all the way up to when they leave that company—whether they leave that company in 1 year, 5 years, 20 years to retirement—I think the best way to improve the impact from any of those stages is to think of them as part of a cycle instead of standalone.

You could have a great onboarding program where employees feel welcomed, needed, and appreciated at the company the day they walk in. They understand how the business works, are given the perfect tour, the right training in their first 3 to 6 months, and they’re given the right assignments and the right coaching and attention from their managers. But, if you haven’t paid attention during the recruiting and hiring process, you could be spending 3 to 6 months of time and energy into someone who never should have been hired in the first place because your recruiting and hiring processes were lax and not robust enough to catch the things that make that employee bad match. Many times, an issue doesn’t show up until someone’s on the job, because it wasn’t addressed during the hiring process.

Here’s another example. You could have the most outstanding onboarding process, but once the person has been on the job for 3 to 6 months and they have a terrible manager, or their assignments are not clear or they don’t understand the strategy of the dealership, it could break down.

It’s an ecosystem. Think about an employee’s lifecycle in biology terms. First you have a little egg, then it turns into a fish. You have to look at that lifecycle and assess your organization against it. What does a good recruiting and hiring program look like, and what should the outputs be? What does a good onboarding program look like, and what should those outcomes be? What does a good management look like? What about the dealership should people know?