The True Cost of Employee Turnover in Tech

Date: August 29, 2023
true cost of turnover in tech

Any tech company will say that their greatest asset as an organization is the strength of their team. And yet, more often than not, tech companies fail to act on the staggering 13.2% employee turnover rate that is plaguing tech organizations today. This is the highest turnover rate of any sector and highlights the significant problem that tech companies are facing, and the importance of acting now to implement effective retention strategies that will lower this rate. 

By taking the time to develop retention strategies and work towards creating a culture of appreciation and recognition, organizations can transform their turnover rates. In this blog post, we will explore the trust cost of turnover in tech companies and highlight key challenges and next steps to take in order to keep top talent. 

What is Turnover?

Turnover refers to the rate at which employees leave a company and are replaced by new hires. It is commonly expressed as a percentage and is a key metric for understanding the dynamics of workforce changes within an organization. High turnover may indicate challenges in employee retention, while low turnover suggests greater stability in the workforce.

Turnover in Tech

While employee turnover is a challenging obstacle that many companies face, tech companies have a gargantuan challenge lying ahead of them, in order to improve turnover rates. This is because tech has the highest turnover rate of any industry at 13.20%.

Despite the staggering turnover rate, poor retention is nothing new for tech companies. Tech turnover rates have been high for years, and a recent study conducted has investigated this rate further and found some of the core reasons why employees leave tech companies. These include: 

  • 83% of tech employees leave due to dissatisfaction with the job role
  • 78% leave due to dissatisfaction with career growth and professional development
  • 75% leave due to salary or compensation reasons
  • 73% leave due to burnout. 

These staggering statistics underscore the importance of improving workplace culture to better improve retention rates. High turnover hosts an array of issues for organizations but understanding these challenges can help highlight exactly what and why changes need to be made. 

Employee Turnover Challenges

Employee turnover presents significant challenges for tech companies that extend far beyond the mere act of filling vacant positions. Understanding and addressing these challenges is crucial for creating a stable and successful work environment. Here are some of the key challenges that tech companies face due to employee turnover:

true cost of turnover in tech

1. Loss of Institutional Knowledge: 

When a high performer leaves, they don’t just leave an open seat at your office, they take their good ideas, hard work, understanding of the market, and understanding of the product with them. Even if they leave detailed notes and training for their replacement, they have more information stored in their brain that you lose. This information includes insights into the company's internal processes, product development, and industry trends. Losing this knowledge can hinder decision-making, slow down projects, and lead to costly mistakes as new employees struggle to get up to speed.

2. Impact on Team Morale:

High turnover rates can demoralize the remaining team members, particularly if they witness their colleagues leaving frequently. The uncertainty and instability resulting from turnover can lead to decreased job satisfaction and productivity among the existing team.

3. Cost of Hiring and Training: 

Recruiting, hiring, and training new employees is time-consuming and is an expensive process. In fact, it is so expensive that by 2030, the US is expected to lose $430 billion due to low talent retention. Companies invest countless resources in screening candidates, conducting interviews, and providing onboarding and training programs. Frequent turnover escalates these costs, diverting resources that could be better utilized for other critical business initiatives.

4. Disrupted Project Timelines: 

Losing key team members can disrupt project timelines and deliverables, leading to delays and potential missed opportunities in a fast-paced tech industry. In fact, it can take approximately 8 months for a new employee to be fully productive in your office.  Filling the gaps left by departing employees takes time, leaving teams struggling to maintain productivity during the transition period.

5. Negative Impact on Company Culture: 

A high turnover rate can erode company culture, leading to a lack of continuity and shared values among employees. A strong and positive company culture is vital for attracting and retaining top talent, and its degradation can perpetuate a cycle of further turnover.

6. Risk to Client Relationships: 

For tech companies that provide client-facing services, employee turnover can jeopardize established client relationships. Clients may feel uneasy about working with new team members, impacting trust and satisfaction levels.

7. Talent Drain to Competitors: 

In a highly competitive tech landscape, turnover can lead to a talent drain, with top performers leaving for opportunities at rival companies. This can result in a loss of innovative ideas and market insights that could have propelled the company forward. 

So if we know these facts about employee turnover, why don’t we try to combat it more?

That may not actually be the right question to be asking. Companies are taking initiative to reduce turnover rates by paying competitive salaries, providing employee perks, having a work-life balance, and building out great company cultures. 

true cost of turnover in tech

The real problem with lowering employee turnover, is that tech companies don’t often know how to measure employee turnover rates, especially since, when it comes to implementing employee retention strategies, you have to pick a strategy and go with it.

In order to make headway into employee turnover rates, a company must be able to track and measure the results of a retention program over time. If you cannot measure the data, you will not see any results.

So let’s start with the basics.

If you’d like to find out more about how the Bucketlist employee rewards and recognition app can help your business, contact us for a free demo. We’d love to help you improve your company’s engagement!

How to Measure Employee Turnover.

If you currently don’t have any data on employee turnover, start with the fundamentals.

  1. Know how many employees work at your company.
  2. Know how many employees have left your company in the past 12 months.

These two numbers will provide your employee retention rate, which is the first number you will use as a baseline to measure against.

The math for this is simple. Divide the number of employees that left your company within the past 12 months by the number of people that work at your company.

*For example: If you had 12 employees leave your office in the last 12 months, and you have 100 employees at your company. That would be 12/100= 12%.

In this example your baseline for the past year is a 12% turnover rate.

You now have the first piece of information to help you track the true cost of employee turnover! But while the baseline percentage is helpful, without adding a dollar amount to this figure, it is hard to gauge what kind of impact employee turnover has on a company. To help calculate this impact, you will need to collect a few numbers to see how much employee turnover costs your company.

Here are the numbers you need to collect:

  1. Cost of hiring 
  2. Cost of onboarding and training
  3. Cost of learning and skill development
  4. Cost of time with unfilled role

After collecting these numbers, you can follow a simple formula, which is:

(Cost of hiring + cost of onboarding & training + cost of learning and skill development + cost of unfilled time) x (Number of employees x annual turnover percentage) = your annual cost of turnover.

Annual Cost of Employee Turnover Formula

This number will tell you how much turnover cost your company has incurred in the past year. Let’s do a quick example to give you a concrete idea of how much money you could be saving by reducing employee turnover.

In this example, let’s say you are a 500 person company that lost 65 people to turnover last year. That would give you a 13% annual turnover rate. To make this easy, let’s say you also spent $10,000 on hiring those 65 vacant seats, $10,000 on training and onboarding, $10,000 on turnover and development, and you lost $30,000 from having 65 vacant seats. That would mean that your annual cost of turnover would be $3.9 million.

I don’t know about you, but I would love to have an extra $3.9 million dollars to reinvest into my company.

Now let’s be honest. With a company that size, chances are unlikely that you will reduce turnover to 0%. However, what if you reduce turnover by 10%? You would save $390,000 annually! 

Now you give it a try.

Download this spreadsheet and enter in your own numbers to make your calculation easy. 

Next steps

Now that you understand your current turnover rate, the next steps include finding ways to mitigate and reduce it. To help with this, here are 5 quick steps you can take to reduce your tech company's employee turnover rate.

1. Set a goal

Setting a goal to reduce turnover rates in tech companies requires a structured and well-defined approach, and leveraging SMART goals, which play a crucial role in this process. Ensure that the goals set are SMART - Specific, Measurable, Achievable, Relevant, and Time-bound. For example, a SMART goal could be to reduce turnover by 15% within the next six months by implementing targeted employee engagement initiatives. To achieve these objectives successfully, involving employees in the goal-setting process is essential. Seek input from staff through surveys, focus groups, or one-on-one discussions to understand their concerns and gather insights into the factors contributing to turnover. Employee feedback can be invaluable in identifying areas for improvement and tailoring retention strategies that address their needs and expectations.

By incorporating SMART goals and involving employees in the process, tech companies can create a collaborative and targeted approach to reduce turnover rates effectively and set actionable goals to foster a more engaged and satisfied workforce.

2. Do an anonymous company-wide employee survey 

In the quest to reduce employee turnover, gaining valuable insights into your employees' perceptions and sentiments is essential. Conducting anonymous company-wide employee surveys provides a platform for employees to express their honest opinions about the organization. Through these surveys, you can gauge whether employees feel valued and appreciated for their contributions. Additionally, you can explore whether they are emotionally connected to the company's purpose and mission. Employees who feel engaged in their work and aligned with the company's goals are more likely to remain committed to the organization in the long term.

Once the survey results are collected and analyzed, they offer a comprehensive understanding of the overall company climate. These insights can serve as a starting point for identifying areas of improvement and addressing issues affecting employee satisfaction. By focusing on "low-hanging fruit" – easily achievable and impactful changes – derived from survey feedback, tech companies can initiate positive transformations that lead to a more engaged and satisfied workforce. Remember, fostering open communication through surveys demonstrates a commitment to employee well-being and lays the groundwork for building a thriving and motivated team.

true cost of turnover in tech

3. Leverage employee referrals 

Employee referrals are a great way to bring down your overall hiring costs. They offer a multitude of benefits for tech companies looking to optimize their hiring process and reduce overall recruitment expenses.

Firstly, referrals often result in faster hires, effectively minimizing the duration of vacant positions and subsequently lowering the cost associated with unfilled roles. Additionally, they prove to be more cost-effective since companies don't incur recruitment expenses in reaching out to potential candidates.

Moreover, referred employees tend to onboard faster compared to traditional hires due to the support of a friend within the company who can provide guidance and answer questions during the onboarding process. This sense of camaraderie and familiarity fosters a stronger cultural fit, contributing to higher employee satisfaction and retention rates in the long run. Ultimately, leveraging employee referrals can lead to a more efficient, cost-effective, and tightly-knit workforce, driving the success of tech companies in an increasingly competitive industry.

4. Build a positive work culture 

I’m not suggesting buying ping-pong tables or hosting weekly happy hours as a company (although those can be enjoyable perks). Instead, prioritize the factors that truly make your employees feel comfortable and happy at work. Foster a culture of recognition, appreciation, and teamwork and move away from cutthroat competition and in-frequent work-anniversary celebrations. Employees crave a sense of purpose and want to feel as though they are actively contributing to the company's success. Showing gratitude for a job well done can have a profound impact on their job satisfaction and motivation. A simple thank you can go a long way in making employees feel valued and fulfilled in their roles.

5. Repeat

Just because you took a company survey last year, or last quarter doesn’t mean that things haven’t changed. Measure employees happiness in the workplace and repeat these steps over and over until you start to make headway. 

Wrapping Up: Turnover in Tech

In the competitive tech industry, attracting and retaining top talent is crucial for sustained growth and success. By understanding the true cost of employee turnover and actively taking steps to retain employees, tech companies can build a loyal, skilled, and engaged workforce that drives the company forward. 

Remember, nurturing and retaining your employees will ultimately yield invaluable returns, creating a thriving workplace where both the company and its employees can thrive. By investing in their employees' success and well-being, tech companies lay the foundation for a prosperous future.

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