In today’s business climate, a solid employee retention strategy is more important than ever. Even as the Great Resignation has waned in some sectors, high employee turnover continues to plague organizations. It’s an issue that’s not going away anytime soon. In fact, advisory firm Forester predicts that employers will face more, not less, worker turnover long into the future. This is especially true of frontline workers—who already quit at a rate of 50 percent within the first three months. While some turnover is natural, excessive turnover can crush a business. Beyond the loss of valuable team members, the cost of replacing an employee can be staggering—from one-half to twice the employee’s salary. And the detrimental effects of high turnover extend beyond mere financial strain. Here are six ways that high turnover negatively impacts an organization.
Decreased Productivity
According to Gallup, employees who are considering leaving tend to become disengaged, and disengagement incurs a cost of between $450 billion and $550 billion each year in lost productivity. If workers do leave, the time it takes to train new employees—a minimum of three months by some estimates—further impairs productivity as managers are spending more time onboarding and training newcomers. Expedited training isn’t a viable solution. It can result in embarrassing, costly, or even dangerous mistakes that wind up taking even more time away from production.
Impaired Customer Relations
When employees are constantly new, lacking knowledge about products, services, and procedures, customers grow increasingly frustrated. Consulting firm Watermark found direct, negative correlations between companies’ employee retention rates and their Net Promoter Scores (a widely used measure of customer experience quality). High turnover led to low customer satisfaction. Especially in frontline industries, where courteous, skilled public-facing employees are vital to the customer experience, high employee turnover means bad online reviews and, eventually, lost customers.
Plummeting Morale
As employees watch their coworkers come and go, they become less likely to engage with new hires. Moreover, as coworkers leave, employees are more likely to consider the reasons why—ultimately leading to their own departures. Managers lose motivation, too, when it comes to implementing new initiatives or investing in employees’ growth. When morale is low among frontline employees, their customer service skills decline. In fact, a survey by Eagle Hill Consulting found that dissatisfied employees were more than 2.5 times more likely to say they do not provide excellent customer service. As mentioned above, indifferent customer service is contagious, leading to indifferent customers who will take their business elsewhere
Tarnished Reputation
High turnover makes businesses look bad. Those poor online reviews from disgruntled customers send a negative signal to both would-be buyers and potential employees. According to Forbes, negative online reviews deter 80% of viewers from contacting a business. And a Harvard Business Review study found that businesses with a poor reputation as employers had to offer at least 10 percent higher salaries to entice employees to join. A bad reputation can also discourage partners, investors, and lenders who view low employee retention as a sign of overall organizational instability.
Product Quality Issues
Whether the product is a clean, safe facility or a medical device, high turnover can negatively impact product quality. In the custodial industry, where turnover hovers around 200%–an entire workforce replaced twice in a year—turnover can turn into dirty, cluttered buildings. A poorly maintained building can deter potential tenants and visitors, as it’s often their first impression of a business. When it comes to manufacturing, poor employee retention can mean faulty products, leading to costly returns. A a research study by Informs found a direct link between turnover and product quality: “Despite the manufacturer’s extensive quality control efforts, including stringent testing, each percentage point increase in the weekly rate of workers quitting from an assembly line (its weekly worker turnover) is found to increase product failures by 0.74%–0.79%.”
Safety Concerns
High turnover decreases safety. According to OSHA, 40 percent of employees who are injured have been on the job less than one year. Not only is this statistic troubling when considering the human toll, but it’s also bad for a company’s bottom line. Businesses incur over $170 billion annually due to employee injuries or illnesses. Indirect expenses such as productivity loss, equipment damage, and legal fees can multiply total costs by a factor of ten.
Start with Recruiting the Right People for the Job
According to the Harvard Business Review, 80 percent of turnover is due to bad hires. Employee retention starts with recruiting and onboarding the right people. To do that, recruiters need to be crystal clear about their expectations and communicate them in an effective, accessible way. They also need to understand how much emphasis to put on hard versus soft skills—especially when it comes to frontline roles. In some cases, “trainable” is better than pre-trained. Finding the right people for the job also means widening the talent search to include innovative employment models and underutilized workforces. A 2020 study by Accenture and Harvard Business School coined the term “hidden workers”—an estimated 27 million people, including individuals with disabilities, who are eager to work, demonstrate numerous business benefits, and are statistically more likely to stay at a job.
