Business owners are always finding ways to curb unnecessary and costly expenses, but employee attrition still remains to be one of the most costly expenses to business owners. Employee attrition is the rate of employee turnover at an organization at a specific period of time. Attrition happens due to several factors, mostly triggered by concerns about compensation, performance, company culture, work location, and growth opportunities.

Businesses are aware that they lose money due to employee attrition, but few realize how big the cost of employee attrition is. Here’s an example. If an organization with 500 employees has an annual turnover of 90 employees, the business loss amounts to a whopping sum of $3 million USD.

So where does this staggering amount come from? Here’s a step-by-step rundown.

First Phase. Recruitment Expenses

Finding new hires for a business involves scaling an internal recruitment department or tapping a staffing agency. Having an internal recruitment department means paying for employee compensation and benefits, office expenses, and other overhead expenses.

Partnering with a staffing agency means paying for a finders fee. For businesses with a high attrition rate, cost of finding & hiring, and training new hires is easily double or triple the cost of retaining a tenured employee.

Second Phase. Training & Onboarding Expenses

After finding new hires, businesses will have to do rounds of orientation, training, and onboarding. This phase takes time and money. Training lasts from 2 weeks minimum to 6 months maximum. Businesses spend money on training wages, training materials, compensation of trainers, and payment on tools and applications needed by trainees.

Third Phase. Costs Associated To Loss Of Productivity

When a business loses people, finding replacement takes time. The number of days or weeks it takes to find, hire and fully onboard a new hire is equal to days of productivity lost. This also means a decrease in production and service delivery to clients.

Fourth Phase. Costs Associated To Loss Of Trust

Losing employees affects the morale and trust of remaining employees. Employees who are left behind are less motivated, feel less secure about their role, and trust their management less. These employees could even be prompted to look for another job. Employees lacking motivation are less productive and more unhappy, severely impacting the service delivery and revenue generation of any business.

Fifth Phase. Cost Associated to Negative Reviews

Negative feedback from previous hires can cause a ripple effect which could severely impact a business. While a great employee reputation builds trust, high attrition rate ruins the integrity of a business. Culture, working environment, and business management will be put into question. Not only do negative reviews impact the potential of hiring exceptional talents, but it can also impact client trust which is directly connected to income or revenue accrued by any organization. A perfect example is Uber, who lost numerous employees and investors due to high employee attrition.

Put together, business owners shouldn’t be surprised by the cost of employee attrition. It should be a goal for every business to keep the attrition rate low and give compelling reasons to make its workforce happy and satisfied.