May 18'

The True Cost of Employee Turnover in Tech

Any tech company will say that their greatest asset as a company is the strength of their team. Strong teams succeed, while unorganized teams fail. Yet, so many tech companies fail to recognize the true cost of employee turnover within their respective organizations. Employees make up the basic framework of any team and thereby a company, and without employees to run the operations of a company, all companies would fail. This makes perfect sense to anybody reading this, yet it makes you wonder why so many companies neglect their employees while they focus on chasing investment dollars, sales metrics, or product features. If CEOs truly want their company to be successful, they will invest heavily in their employees because they know the true cost of employee turnover. In fact, this article argues that retaining top tech talent is more important than hiring them because if you focus on hiring instead of retention, you will get stuck in a perpetual hiring cycle. Think of all those hours spent training new employees instead of building better products or marketing campaigns or sales practices. While employee turnover is a challenging obstacle any company faces, tech companies have a gargantuan challenge lying ahead of them to improve turnover rates. This is because in 2018 tech has the highest turnover rate of any industry at 13.20%.
Average Turnover Rate by Industry
Technology 13.20%
Retail & Consumer Products 13.00%
Media & Entertainment 11.40%
Professional Services 11.40%
Government/Edu/Non-Profit 11.20%
Financial Services & Insurance 10.80%
Telecommunications 10.80%
Oil & Energy 9.70%
Aero/Auto/Transport 9.60%
Healthcare & Pharmaceutical 9.40%
  This is nothing new. Tech turnover rates have been high for years, but companies that can reduce turnover to 10% could be saving millions of dollars a year on the bottom line. That’s because there are a few big problems with employee turnover.
  1. It’s expensive.
    • People naturally understand that losing top performers at the office is a bad thing. However, a lot of people fail to recognize just how harmful losing a top performing employee can be. 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 replacee, they have more information stored in their brain that you lose.
  2. It slows down progress
    • It takes time to train new employees. In fact, it can take up to two years for a new employee to be fully productive in your office. That puts you two years behind schedule, and that is if your new employee is as capable as top performer who just left.
  3. In the United States it take 23.8 days on average to hire a new employee.
    • That is almost a months worth of work being lost when an employee leaves. When you are working in a competitive market, losing a months worth of work can seriously hinder your company’s progress.
  The true cost of employee turnover   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. The real problem with lowering employee turnover, is tech companies don’t often know how to measure employee turnover rates. Unlike running a marketing campaign, where you can run A/B tests to see which advertisement works best, when it comes to implementing employee retention strategies, you have to pick one 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 ba sics.  
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 you 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 give you your employee retention rate - 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: 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. This number is good, but what does that mean for your company? Without adding a dollar amount to this figure, it is hard to gauge what kind of impact employee turnover has on a company.   How to measure the true cost of employee turnover for your company. Congratulations! You have the first piece of information to help you track the true cost of employee turnover. Now, 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
Then, the simple formula 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 in the past year. In an ideal world, turnover rates would be 0% and all that money that you lost due to turnover could have been spent on new hires, pay raises, bonuses, new equipment and tools, etc. 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.  
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!
  Next steps Once you know your company’s true cost of employee turnover by using the spreadsheet up above, your work has just begun. Here are 5 quick steps you can take to reduce your tech companies employee turnover rate. 1. Set a goal. The most important thing you can do now that you know your companies data on employee turnover is to set a goal. Try to set a goal that will make you go for broke, but that you can realistically attempt. Don’t try to set a goal for 0% turnover rate unless you have a company under 15 employees.  Let’s say you had a 13% turnover rate last year with 500 employees and you wanted to decrease that to 11%. That would mean you would only have 55 employees leave this year. That means you would only need to retain 10 more employees from last year, and suddenly this goal seems much more realistic. 2. Do an anonymous company-wide employee survey. Sometimes it is hard to know what your employees really think of your company. Try to gauge if they feel valued and appreciated for their work. You should also try to understand if your employees feel connected to your cause. Employees that feel engaged in their work and tied to the mission of the company are much more likely to stay onboard long term. When you find the results of these surveys, you can get a sense of overall company feel and you can make starting points on the low hanging fruit from the survey results. 3. Try to hire employee referrals. Employee referrals are a great way to bring down your overall hiring costs.
  • They are a faster hire, so you don’t have vacant seats open for as long, reducing your unfilled role cost.
  • They are cheaper to hire because you don’t have to pay recruiting costs to reach them.
  • They onboard faster than traditional hires because they have a friend who’s not their boss that they can turn to and ask questions as they onboard.
  • They stay at their job longer than traditional hires because they have a friend and are better culture fits.
4. Build a positive work culture. I am not talking about buying ping-pong tables and having weekly happy-hours as a company (though I am not arguing against them, either). But focus on what makes your employees feel comfortable and happy at work. Build a culture of recognition, thanks, and teamwork rather than hard-nose competition, and the occasional work-anniversary achievement.  People want to feel like the work they are doing is meaningful for the company, like they are a part of moving the company forward. A simple thank you for a job well done can go a long ways towards making your employees feel content in their job. 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.   Remember: the true cost of employee turnover impacts your bottom line more than you may realize. Your employees are your most important asset. Don’t just let them walk away. Make a compelling argument for them to stay by the way you treat them.   [dt_divider style="thin" /] 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!
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