The Hidden Costs of Turnover That Leaders Ignore

Employee turnover has a significant financial impact on companies, yet it's an expense that often goes unquantified and underestimated by business leaders. Too often, Waxwing Business is hired to help with recruitment because small business owners are desperate to fill open positions that are crucial to their operations. Instead of assessing why these positions are open, though, they are focused on the void. They are looking at the lost revenue that exists because a worker can’t make something to sell, or they can’t meet a deadline. Meanwhile, financial staff are busy assigning expenses like online ads or newspaper classifieds, but hidden costs go untracked, even unseen. While the obvious costs of hiring and training new employees are seen as line items, there are many indirect and long-term turnover costs that get overlooked.

It’s my experience that almost no one is tracking all the costs associated with turnover. 

Here are some of the major costs of turnover that should be calculated, but they rarely are:

Productivity Losses

When an employee leaves, there is an inevitable loss of productivity and engagement during the transition period until a new hire is made and onboarded. Existing employees may need to pick up the slack while managers spend time pulling job descriptions, interviewing candidates and dealing with knowledge transfer. Even after hiring, there is a ramp-up period where a new employee is not operating at full productivity. There are easy, concrete ways to track these losses, but they go unrecorded most of the time. 

Lost Innovation and Expertise

Turnover leads to a company losing valuable institutional knowledge, skills, relationships and perspectives - things that can't just be downloaded into a new hire. Product and customer insights, efficiencies discovered through experience, and even just the transfer of knowledge requires major time investment when bringing on new employees. Again, with good human resources-related programs and management, there are quantifiable ways to make sure these losses are minimized.

Added Operational Costs

Beyond hiring expenses like recruiters and job posting fees, turnover requires investing in things like additional training, tools and resources for new employees. There are also smaller incidental costs like relocation, severance packages and even potential overtime for retained staff while short-handed. Most owners and managers correctly assign these expenses, but they don’t bother to calculate them into an overall turnover cost- they just become a human resource-assigned expense.

Impact on Engagement and Culture

Excessive turnover can damage overall employee engagement and morale. It disrupts team cohesion, burdens remaining staff, and can signal broader cultural issues that make it harder to attract and retain talent going forward. Employee burnout and turnover often creates a vicious cycle. This is what I see most often that senior level executives ignore. They aren’t willing to dig deep to identify issues that are systemic and lead to increased turnover. On top of that, managers who are toxic can often contribute to turnover but aren’t held accountable. This article from Inc. magazine outlines the various ways toxic managers can affect the health of an organization, beyond just turnover. 

These dynamics usually occur in an environment with lax policies and leadership who are afraid to be assertive. Tolerance for mediocrity and toxicity is a major factor in spreading workplace dissatisfaction, and it can exist like a humming disease under the top layer of your organization, barely out of sight. A well-designed human resources program can prevent problems like these, even predict them, and stop them in their tracks. 

Loss of Clients and Revenue

In sales, client services, or any role where employees own key relationships and accounts - turnover directly impacts revenues and can even lead to lost clients who don't want to go through transition periods or staffing changes. This hit to the bottom line is often underestimated. Additionally, high turnover can reflect badly on a company’s brand image. Customers and clients appreciate healthy, stable workforces who provide the same in service.

Turnover Math Adds Up

While the exact numbers will vary based on role, industry and compensation data - most credible studies indicate that the total cost of losing an employee can range from tens of thousands of dollars to multiples of the employee's annual salary. I assess each company’s turnover rate differently, as every company has different processes and expenses associated with turnover.

Leaders have tunnel vision focused solely on the hard costs of hiring and training replacements. By quantifying the true toll that turnover takes, from operational and productivity drains to cultural impacts and revenue losses, the case for investments in retention strategies becomes clear. Furthermore, CEOs and boards need to prioritize Human Resources in the same way they do sales and finances. Nothing is more valuable than a company’s workforce.