The Real Cost Of Losing An Employee Can Be 2 Years’ Productivity…: Here's What You Can Do About It!

The Real Cost Of Losing An Employee Can Be 2 Years’ Productivity…: Here's What You Can Do About It!

What happens when an employee leaves the company? What is the cost to replace an employee? The answers aren’t as straightforward and it is important to seek answers to them.

Studies suggest that losing an employee can cost as much as twice their annual salary, and this is not just for the high-earners. It holds true at most levels.

2 Years Loss Of Productivity
It takes one to two years before an employee is fully productive, meaning they may not be as productive as the previous employee for two years. Two years is a lot of time to get things back to normal!

Frequent voluntary turnover has a negative impact on employee morale, productivity and company revenue. Add to that, the costs associated with your trained employees exiting, having a suitable succession plan in place is imperative… at all levels!

Real Cost of Losing An Employee Can Be Close To Two Year’s Productivity!

Here’s what the total cost of losing an employee looks like!

  • Cost of hiring a new person (advertising, interviewing, screening, hiring)
  • Cost of onboarding a new person (training, management time)
  • Lost productivity (a new person may take 1-2 years to reach the productivity levels of an existing person – this also means, where a senior’s intervention is no longer need to carry out the majority of the tasks at hand)
  • Training cost (10-20% of an employee’s salary is invested in training)
  • Customer service and errors (new employees take longer and are often less adept at solving problems, thus needing to involve a senior or experienced colleague)
  • Long engagement (other employees who see high turnover disengage and lose productivity)
  • Cultural impact (other employees wonder why he/she left)

People are an ‘appreciating asset’ for an organisation.

Hence, the economic value of an employee increases with time. The longer they stay with a company, the more productive they get. Not only is hiring right people important but also training them well and retaining them is equally important.

Most companies feel that this problem can be solved by offering more money to its employees.

Multiple studies show that while under-compensation can definitely contribute to people exiting, over-compensation won’t make up for a bad workplace. Your well paid but unhappy employees will simply leave and make their money somewhere else.

Here are some ways to ensure you don’t have the pay the heavy price of losing an employee!

1. Focus On Growth:

Younger workers are more likely to prioritize things like personal growth and career opportunity over income and job security. Few quick questions that you need to answer are:

  • Have you had a conversation with your employees about their long-term goals?
  • When a capable person on your team wants a role bigger than her past experience, do you give her a shot or do you simply hire someone with more experience?
  • When people need to acquire new skills to advance their careers, what does your company do to help them?

If you don’t build a culture that deliberately provides good answers to these questions, it will be a matter of time before your employees start looking for a workplace that does.

Training And Development

2. Have A Robust Training And Development Program:

Invest in a great training and development program. This not only helps retain employees but also ensures, that in the event of an employee leaving the company, the new ones can be trained to be more productive, in a shorter period of time.

Most companies also follow the principle that the quitting employee will train the new joinee to ensure there are no gaps in the process of knowledge transfer.

3. Analyse ‘Impact’:

Impact applies at two levels; the impact your company is having on the world and the impact an individual is having on your company. People want to know in which direction the company is heading. It is very important to chart out a purposeful company mission so that people are able to prioritize their work even in tough times and get going because they know they are part of something that matters.

Giving a tangible sense of the impact the company is having on the outside world will also help the people know what they are working on is contributing to a mission that matters in the long run. They assign a sense of ownership to their tasks and feel engaged with the company.

4. Develop An Interactive Culture:

Research states that 87% of employees are not engaged in their work. One of the main factors contributing to this was found to be that people don’t understand why they do what they do.

When you don’t know ‘why’, it is hard to have a deep sense of purpose and passion about your work. You have to let in your employees about the ‘on-goings’ of the company affairs.

Conducting town halls, moving over the regular ‘meeting room’ appraisals, weekly catch-ups, etc. are ways in which the communication between the management and employees can be improved.

The absence of a good interactive culture in place leads to a loss of excitement and vision towards work amongst employees, which is another cause of them calling it quits!

Interactive Culture

5. Encourage A Feedback-Based Environment

Providing employees with regular feedback on their performance and career progress can help reduce turnover. Compared to conventional, less-frequent feedback, such as annual or quarterly performance reviews, experts say providing regular check-ins can also help increase productivity and lower levels of stress.

There is a flip-side to this – not all employees will be open to constructive feedback. Such employees might quit. Which is not necessarily a bad thing.

Retention has two sides – getting rid of the ones that don’t fit into the culture and holding on to the ones that are right for the company. Constant feedback is a good way of weeding out the employees you don’t want in the organisation.

6. Try Not To Micromanage:

Micromanaging creates a very unhealthy environment and employees feel handicapped to take independent decisions. Employees that were once productive, might lose motivation and initiative and their productivity decreases.

Micromanagement is detrimental to the point an employee might switch to another job for his piece of mind. So, loosen those reigns and just give your employees the flexibility and freedom they crave in their work. You will notice lesser dissatisfied people around and a decrease in attrition rate.

Try Not To Micromanage

7. Have A Succession Plan In Place:

A succession plan is not just important for the CEO post, which is a critical position. There are plenty of other roles which need to be filled immediately, in case an employee leaves.

The succession plan is a fantastic way to send the message that there is always room to grow or to try new opportunities. Most of the companies who go for such plans effectively communicate their desire to hire and promote from within, which is an excellent motivator for employees.

62% of employees say they would be “significantly more engaged” at work if their company had a succession plan.

When employees feel like there are opportunities to develop their skills, work with new people and expand their job functions, they are more motivated to expand beyond their designated role.

What Should You Do When An Employee Leaves?

While every effort should be made towards retaining your team, it is important to acknowledge the fact that some employees will eventually leave. In such a case, certain steps have to be taken to fill the void immediately so that there is no loss to the company.

1. Conduct Exit Interviews

Exit interviews are an invaluable source of information to assess the overall quality of work life within your organization and uncover major reasons for people exiting. It provides the opportunity to ask if there are any open issues of which you need to be aware.

Exit Interviews

You not only get a candid assessment of your organization’s environment and culture but also an insight into what went wrong for the employee. Once you have a list of issues, you can chalk out leading problem areas and work out a plan to rectify them.

2. Keep In Touch With Ex-Employees

Another way is to have a strong alumni network in place. A company should ideally keep in touch with ex-employees. It can be a huge powerhouse of knowledge transfer, enabling new employees to learn faster and adjust to the systems and processes around them.

Additionally, the alumni is a great place to tap into for re-recruiting. Once you’ve made the necessary changes that led them to leave in the first place, you could attract them back.

3. Measure And Improvise

One of the reasons the real cost of employee turnover is underestimated is because most companies don’t have systems in place to track the exit costs, recruiting, interviewing, training, lost productivity, lost expertise, reduced business etc. This takes a strong collaboration among departments which should be taken into account immediately.

You cannot have a situation where employees are with you forever. However, it is always possible for you to ensure, the time they are with you is worthwhile and the overall productivity and motivation is never hampered – you just need to have the right practices in place for that!


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