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?
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