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The true costs of poor employee retention levels

By James Bessant, 31st October 2016

Recruitment is expensive; coming from an agency-side recruiter, this seems a counter-productive statement to open an article with, but the bottom line is the cost to businesses to hire can often be extremely high. 

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Companies often see the headline figure of a recruitment consultancy fee as the major cost of hiring but bear in mind some of the other associated costs which are potentially incurred when you have to recruit:

  • Advertising costs
  • Interviewing; time is lost from other key activities
  • Loss of team productivity through not having to cover additional workload
  • Temporary recruitment costs to fill skills gaps while hiring
  • The time to hire; the longer a role remains unfilled, the greater the impact to the business
  • Training costs for new employees
  • The time it takes for a new employee to work optimally

An article on Monster shows the average cost to fill a vacancy to stand at £4,500 but this only focuses on a typical agency cost to hire. Research carried out in 2014 by Oxford Economics revealed the true cost of having to recruit came to a staggering £30,614 per person. This study focused on two core areas:

  • The cost of lost output while a replacement employee gets up to speed
  • The logistical cost of recruiting and absorbing a new worker

Taking a quick look at these two sums, it demonstrates the hidden costs of recruitment stack up enormously over and above the headline figure of using an external recruiter. Losing time and productivity from your existing team should emphasise the importance of employee retention to all managers who want to drive down long-term recruitment costs.

The cost of recruitment; a senior manager’s perspective

I was recently having a business lunch with two senior hiring managers within the eCommerce space, both who work for different technology vendors. Having discussed how the market for high-calibre individuals was becoming ever fiercer in the UK, I asked for their perspective on what the cost of recruitment is to their teams.

Both agreed that the loss of productivity was the largest factor when considering how to approach potentially losing an existing team member. Their remaining teams would often then become stretched and this would escalate the risk of further staff turnover, which would further increase the overall recruitment costs to the business.

Following on from this, I asked what stance they take if they recognise that losing an important team member can significantly impact the team’s productivity. Their response was very straightforward; they would look to secure whatever budget it takes to keep the person from leaving the business – this could easily amount to £10-15K salary increases in the current market.

This conversation emphasised to me how companies are viewing key employees in the current market; invaluable assets who they will fight tooth and nail to keep within their business to prevent excessive recruitment costs from lost time and productivity.

While clearly there are better long-term strategies to consider than just offering a large pay rise to retain your top talent, this quick fix approach is definitely becoming more common in the UK market. Park Street People has seen a 170% increase in candidates falling out of the interview process at the final stages in the past quarter (candidates at final interview or offer stage). The common overriding theme comes back to them negotiating to stay with their current employer; a clear sign companies are being more protective not to lose valuable employees.

0% staff turnover – a perfect world?

If you took a straw poll of 100 business owners to ask what their ideal scenario would look like in regards to staff turnover, the majority would be likely to respond with 0-10%. This equates to a stable workforce in-place with no significant long-term recruitment costs being incurred.

However, employee attrition will always happen no matter how hard companies try to stop it. For the best companies, an annual employee turnover rate of less than 10% is definitely achievable. Seeing companies hitting 30-40% levels though is worrying and should make any senior management team sit up and realise there are significant issues to resolve within their organisation.

It’s important to highlight the other side of the coin when assessing employee retention as staff attrition can also be advantageous for a company. The following factors can all be considered beneficial:

  • Losing ‘bad apples’ from a team
  • Opening up new opportunities for other team members
  • Reducing total salary costs can free up resources to reward others
  • New faces can provide impetus to others to demonstrate their value to the business
  • Bringing in new talent who can significantly improve overall performance levels
  • Different employees handle tasks with an open mind-set leading to greater creative solutions

It is clear than some churn can be useful in certain instances but companies must be switched on to recognise that, longer term, high levels of staff turnover is not positive for the business at all. Employee retention of the best and brightest assets to a business has to be seen as the number one priority for any company who is looking to drive down total recruitment spend.

Download our latest eBook on 9 key areas to focus on to significantly improve your employee retention levels.

Tags: employer advice, assign James Bessant, employee retention

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