How Costly Is Attrition?

October 9, 2020

One of the signs of a successful organization is if it can hire top talent and retain it. Many large companies have an incredible reputation, which often means that employees are more interested in staying with the company for a long time. It can be much more expensive to replace and train an employee, and that’s one reason why attrition can end up costing a company much more than expected.

Attrition refers to your staff’s percentage that ends up either retiring or resigning without ever getting replaced. It also relates to situations where an employee may be laid off or even passes away without being replaced.

It should also be noted that “attrition” as a business term can also refer to customer attrition. This article specifically discusses the concept of the cost of attrition to businesses in terms of human resources.
If your business fails to grow significantly or misses some key opportunities – it’s easy to see how this can affect overall employee morale. A company might have to deal with attrition as employees begin pursuing other options, and it can affect your organization as a whole. While it might be impossible to truly calculate the cost of attrition to the dollar, let’s examine some hidden costs related to attrition.

Recruiting and Staffing

It takes a lot of money and time to recruit the right talent, and some organizations will pay top-dollar to make sure that they are only hiring the best possible employees. It’s estimated that the job recruitment industry is worth about $200 billion globally. Let’s say that you’re a company that uses a reputable staffing company to hire software engineers. It’s easy to see how this is a more expensive process than other companies that might choose to hire a remote staff to save on labor costs.

The average salary of a software engineer in the United States is $92,406. Let’s say that your company is offering a salary of $120,000 to find the best talent possible. You might use a recruitment agency that charges 20% of an employee’s first year, which is a pretty standard fee. This means that you’d be paying $24,000 to the staffing agency for each employee. If this employee chooses to resign shortly after he or she was hired, it will lead to the overall cost of attrition.

Onboarding

Some businesses require a significant amount of training. This is important because there’s a good chance that the organization will still have to pay the employee, even if the training rate may be lower than an actual salary. Regardless, onboarding an employee does take a significant amount of time. The cost of onboarding often depends on the kind of position that your company is hiring, and many experts and analysts believe that spending more time on onboarding can help prevent future business attrition.

Your managers will also often have to spend time with the employee, which costs money. For example, if your manager earns $50 per hour, and onboarding takes 100 hours with a manager, one would have to add $5000 in attrition costs to the total attrition number. Even if a company is outsourcing, there will likely still be a significant amount of onboarding costs.
Onboarding costs might also include tools and software required for the employee to fulfill their role. It will also likely require some time from the information technology (IT) department and human resources (HR) departments. For some roles, new office supplies have to be purchased too. Ultimately, it is easy to see how different aspects of onboarding can help increase attrition costs.

Your Company Culture

Many entrepreneurs and business owners have different ideas about company culture and how it affects an organization. Some large tech startups believe that their company culture is the most integral part of their success, while there might be other small business owners that downplay its role in their growth.

Company culture often refers to company beliefs, shared values, and goals. It might also be tough to instill company culture when it comes to remote staff, as well. If a company keeps outsourcing employees from different countries, some may begin to feel like they don’t “belong” to the organization as much.
It’s also important to note that there are different ways that attrition might affect your company culture. If your company has a valued employee who chose to retire and start a family, it may not drastically affect your company culture. However, if your organization has a public spat with a star employee who then decides to work for a known rival, it’s easy to see how this can affect your company’s staff on an emotional level.
One particular employee might be elevated to fill a role, which can cause further resentment and confusion. In a worst-case scenario, an employee departure might lead to a domino effect. With a domino effect, one employee’s departure could lead to multiple employees leaving or resigning.
Regardless, it’s hard to ignore the facts. Let’s say that you have a star employee of some kind. They might be incredibly talented when it comes to sales, or they may be a marketing genius that has helped your organization scale significantly. If this star employee leaves, it will likely lead to more employees looking actively at other opportunities. They may begin to wonder if there are better alternatives, and it can change your overall company culture.

Conclusion

Some studies conclude that training an employee costs about $1,000 and 30 hours of training. However, there are larger businesses that might require extensive training that also includes travel and living expenses, as well. Some roles also require more training than others, and remote staff roles may require much more extensive onboarding.

There are also situations where an employee might require a bit more training than others due to a lack of knowledge. Often, the cost of attrition changes depending on the circumstances of the employee departure. If the employee was the only one at a company with specific skills or knowledge, it might mean that attrition costs your company more than usual. Ultimately, there are many variables regarding the true cost of business talent attrition, and there are many different ways and methods of estimating and calculating it.