[Elisabeth]

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Hi community,
My line managers don’t put enough emphasis on keeping retention high – they still believe that the cost of losing employees is limited to the direct cost for hiring a replacement. How do I put a price tag on a leaver? What are the main elements of that cost?
Elisabeth

[Ursula Boehle]

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Hi Elisabeth,
Very good question. In my experience the cost of having to replace an employee who left the organisation (where you would have preferred that employee to stay – so we are talking about a “regretted loss”) consists of four parts:
– direct cost of recruiting
– direct cost of onboarding
– cost of the vacancy (while there is nobody to fill that position, the value creation of this position is lost)
– cost of lost value creation during the speed-up time of the new employee since even the best hire takes some time to reach full productivity

The main thought behind this calculation is that – in a company that is financially viable – every employee must create at least enough value to cover a) his/her own people cost and b) a share of the non-people Operating Expenses (such as Marketing, Office rent, IT licences etc.). This gives you a ballpark number for the yearly value creation per head – which you need to get the lost value during a vacancy and the lost value during the speedup time of the new hire.
See the example below – based on a few basic assumptions:
If there are any further question, please just post them below.
All the best, Ursula

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