How is Employee Turnover Impacting Your Profitability?

Have you ever actually calculated the cost of a bad hire? Incorporating pre-employment tests into your hiring process leads directly to improved quality of hire, and can significantly enhance your bottom line. Below is a helpful guide to help you estimate or determine the actual impact of bad hires as well as the value that improving hiring / retention can have on your bottom-line.

Estimate
Actual ROI
Enter the basic data below to quickly ESTIMATE your company's turnover rate, associated costs, and potential savings, based on your industry and various levels of hire:
Industry:
Workforce Demographics
Total Employees Employees Replaced in Last Year Employee Worker Categories Estimated Ave. Annual Base Wage or Salary (Per Worker) Turnover Cost Multipliers *
Entry Level Non-Skilled Worker 30 %
Service/Production Worker 40 %
Skilled Hourly 75 %
Clerical/Administrative 50 %
Professional 75 %
Technical 100 %
IT Specialist 200 %
Supervisor 100 %
Department Manager / Executive / Sales 125 %
TOTAL  
Turnover Rate Calculation
My Annual Turnover Rate: % hires
Industry Norm Benchmark Average: % hires
Related Total Turnover Costs in My Organization
While the more visible and direct costs (severence pay, overtime, recruiting, onboarding and orientation) are well known, it's often the hidden costs that most companies never take into consideration.
Separation Costs Unemployment tax impact, Exit processing, Severance Pay, Increased professional/managerial stress
Replacement Costs Vacancy advertising, Pre-employment administrative, Interviewing, Background checks, Drug testing
Production Costs Lost sales, Lost knowledge, Loss of credibioity and client confidence, Lost customers, Lost referrals, Lower quality of service, Lower productivity, Team disruption, Increased staff workload, Lowered morale, Loss of competitive advantage
* Based on 2014 conservative estimates compiled from SHRM, the Department of Labor, and current research journals. Salaried employee turnover costs range from 1.5 to upwards of 14 times the annual salary. State Detail
Total Estimated Turnover Costs
Potential Savings of Reduced Turnover
The success of your organization depends on the success of your people. While some turnover is inevitable, much of it can be offset by hiring the right people and properly managing them.
Pre-employement assessment can be one of the best investments a company can make to reduce the impact of turnover on the bottom-line.
Reduce Turnover by (%):
Current Target Savings Benchmark
Employee Turnover % %   %
Turnover Costs  
Costs Related to Turnover
Given the weighted average of your company's positions and salaries, shifting your strategies slightly to include pre-employment assessment may conservatively create an average per-employee annual savings of:
These worksheets show various ways to calculate your company's turnover rate, determine the actual associated costs, and predict the approximate savings and bottom-line impact of adding pre-employment assessment to your selection strategies.
Industry:

Data Needed for Calculations

Total Employees Employees Replaced in Last Year Employee Worker Categories Estimated Ave. Annual Base Wage or Salary Ave. Tenure (years)
Entry Level Non-Skilled Worker
Service/Production Worker
Skilled Hourly
Clerical/Administrative
Professional
Technical
IT Specialist
Supervisor
Department Manager / Executive / Sales
Weighted Average

Turnover Rate Calculation & Costs

My Annual Turnover Rate % hires
Industry Norm Turnover Rate % hires
Targeted Rate with Testing % hires
Separation Processing Costs Per Employee All Employees
Unemployment Compensation / Severance Pay
COBRA benefit continuation costs
Conducting exit interviews
Replacement Hiring Costs
Pre-selection
Preparation of Job Description
Sourcing / Preparation / Ad Placement
Selection
Preparation / Resume Screening
Applicant Travel Expenses
1st round of interviews / Phone Calls
2nd round of interviews with managers
Testing
Reference Audit
Criminal Background Check
Hiring expenses, offer, negotation, contract
Recruiter Referral Fee
Onboarding
Orientation, Training, Acculturating
Secondary Tangible Costs
Meetings to remediate employee
Documenting poor performance
Lost productivity, absenteeism, attendance
Total Tangible Costs
Intangible Costs
Low morale caused by disgruntled employee
External reputation of company with customers
Opportunity cost of not selecting a better candidate
Other
     
Total Intangible Costs
Total Turnover Costs

The Society of Human Resource Management recently estimated hiring costs at 1/3 of an employee's salary, not including intangibles. Industry studies place typical hiring costs at $3,000 for hourly employees and $10,000 for exempt employees.

ROI Provided by Reducing Tangible and Basic Intangible Costs (A Conservative Estimate)

  Present Target
# of separations during the year
Average # of employees during the year  
Annual Turnover Rate % %
Actual Annual Turnover Cost
Reduction in Annual Turnover Cost  
First Level Applicants
# of applicants screened / replacement  
Total Screenings  
Applicant Screener Cost
Second Level - Candidates
# of candidates tested / replacement  
Total Candidate Tests  
Cost of Assessment Battery
Annual Budget for Assessment Strategies  
Return on this Investment %

ROI Provided by Hiring Better Performers

Annual Hires People hired per year due to growth and turnover
Tenure Average number of years employees work in the position
Value of High Performance The difference in annual revenue generated by high vs. low performing employee
Present Strategy New Strategy  
Random Hiring
Unstructured Interview
Structured Interview
Knowledge/Skills Tests
Workstyle/Personality
Specific Ability
Validity of Present Selection Strategies %
Estimated Validity of New Selection Strategies %
Increased Validity / Hiring Effectiveness %
Selection Ratio: Number of candidates typically assessed before making hiring decision

Value of Hiring Better Performers:

Leveraging an investment of the return for hiring better performers on your team is estimated to be more than times the cost outlay

ROI Provided by Avoiding Catastrophic Hires

The wrong employees can be the largest liability. Certain assessment tools reduce the risk of hiring employees with highly counterproductive activities such as drug screen, background checks.
Cost of Bad Hire: 7500 Average loss incurred due to hiring a rotten apple (Legal fees, theft, etc.)
% of Catastrophic Hires Avoided: 5 % Proportion of candidates screened out through background checks
Assessment Costs: Cost of Drug Testing and Background Check

Value of Avoiding Catostrophic Hires: