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Fix the Problem, Don’t Replace It.

Replacing one of your employees costs more — way more — than you think.
COLLABORATORS Ross Blake, Dennis Hoffman
The cost of recruiting

Your highest-level employees probably earn salaries well into six figures. Triple or even quadruple the tidy sum paid to any one of those executives or specialized employees and you’ll have a rough idea of what it will cost to replace them, according to a white paper from Sage, the software company, which cites research by consultant Ross Blake. He also details some other eye-opening turnover costs, including:

The Society for Human Resource Management (SHRM) estimates that it costs $3,500 to replace an $8 per hour employee. SHRM’s figures were actually the lowest of 17 nationally respected organizations that calculated such costs.

• Other sources say that it costs between 30% and 50% of a departing worker’s annual salary to replace entry-level employees, 150% to replace middle-level employees, and, as mentioned above, up to 400% for specialized or high-level employees.

Turnover also entails other costs, such as overtime or substitution coverage, onboarding expenses, and dips in productivity as new employees learn the ropes.

As you can see in the chart above, employee turnover is incredibly expensive. Investing in employee retention can provide almost instant payback. Sage calculates that a 2 percent drop in turnover can save a midsize company well into six figures. Achieving best-in-class rates can save millions.



Now that we’ve driven home the cost of high turnover, let’s talk retention. Dennis Hoffman, CEO of Engage Direct Mail, which boasts a 95 percent retention rate, shared some tips with Inc. in the story “How to Improve Retention.” Here’s one: Hire people who live nearby, because long commutes are often unsustainable.

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Fix the Problem, Don’t Replace It.

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