Employee Turnover Is The Silent Killer
By Richard Broudy, Contractor's Business School
Dear Richard: I have 11 employees in the field, one in the office. It seems like I have to hire people over and over because they quit or I have to fire them. Is this normal? Is there a better way? - Glenn
Dear Glenn: Some employee turnover is okay: sometimes you need to show a poor performer the door, but too much (maybe 25% annually) and something’s wrong and that means money (a LOT of money) is walking out the door. What’s scary is that the expense is invisible so it eats away at your profit without you knowing about it.
First of all, how much does it cost, in actual dollars, to lose and replace an employee? You’ll be amazed. It costs between 30 and 50% of an employee’s annual salary to replace him, meaning a $20/hour employee will cost you $16,000 to replace. Five of them mean $80,000 and that’s coming straight off your bottom line.
“That’s ridiculous,” you say. “There’s no way it costs me sixteen grand to replace a field tech.”
Yes it does (there have been a million studies confirming this) but the cost is invisible because there’s no line on your P&L that says “Turnover Expense”. The costs quietly sneak into administrative time (paperwork to finalize the old employee and the process of sourcing the new one. And the big one: lost productivity.
This is a killer. Not only is the new guy himself less productive than more experienced guys, so are the people training and working with him: whoever’s training him is less productive, he unintentionally disrupts the crews, requires more supervision, and will cause more slowdowns, mistakes and callbacks than an experienced employee. Not his fault, it’s just the way it is.
Then there’s you. If you, yourself have any involvement in the hiring process, costs go much higher as time is taken from the tasks that really affect your business.
Finally, there’s the intangible but very real effect of turnover on your other employees. It’s depressing and unsettling to have people coming and going. Your employees want a stable environment.
So what do you do? Two objectives:
Hire only the good ones in the first place. Take your time and do it right. Develop a strong hiring process and use it.
Keep them happy once you’ve got them. If you’re the best outfit to work for, people are both easier to find and easier to keep.
• Compensation: It’s easy to try and hire new people at the lowest possible rate, but spending more on top-flight people is a better investment for productivity. Also, remember that when an employee stays with you for more than a year, you save the 1/3 of his salary that it costs to replace him.
• Keep it interesting: Great employees will get bored doing the same thing forever. Ask what they’d like and try to provide variety.
• Provide a clear path for advancement: They’re more likely to stay if they see what the future may hold.
You won’t eliminate turnover entirely and that’s not a bad thing. It’s excessive, unplanned turnover that is a complete waste.
My best to you,
Richard
Contractor’s Business School® is a coaching, training and consulting firm specializing in helping contractors produce more profit in less time. Calling on experience dating back to 1993, the company has worked with hundreds of contractors in many specialty areas to build successful stand-alone businesses. Visit www.contractorsbusinessschool.com, or call (800) 527-7545 to get the FREE CD "10 Key Strategies to Build a Business that Works."
For more columns, click here.