By: Tony Lysak, Founder and CEO,The Software Institute
A high level of employee turnover is never encouraging, however, not all churn is bad. Managing it effectively is one of the key building blocks for sustainable business growth. Something all companies want and need. As after all, losing an employee you’ve spent precious time and money on building up to be an integral part of your organisation can hurt your bottom line.
Employee churn in businesses is inevitable, necessary, and natural. It makes way for new talent and fresh ideas, whilst those who are no longer aligned with the business have the freedom to move on and take their skills to support innovation elsewhere.
But how do you manage churn and keep it at the optimum level for business success?
Realistically, 10% is the ideal churn rate for a business. Employee turnover can be variable by industry and job role, but for those working in tech – which is currently experiencing the largest-ever digital skills gap, thanks in part to the pandemic – this is optimal. It is also a great baseline for other industries and businesses as they figure out their optimum percentage.
To calculate where your employee churn rate currently sits, you’ll need to determine the percentage of employees leaving your organisation over a certain period and divide it by the total number of employees in the organisation during that same period. A common way of looking at employee churn rate is on a monthly basis. A broader overview can be taken at the quarterly and yearly marks to both provide the average over a longer period of time and determine peak times for employee turnover. Once you have the data specific to your business, you can look into the all-important ‘why’ as recruitment, hiring and training all require a financial outlay, you can’t afford not to find out.
The average employer spends, on average, £3,000 and 27 days to hire a new employee, this rises to almost £4,000 and six weeks for managers and over £12,000 and 10 weeks for directors. This often comes from the direct cost of engaging a recruiter, which tends to be on average £5,000 or 20-30% of your new hire’s salary. Indirect costs are also a variable when you consider the cost of time spent carrying out pre-hiring assessments and interviews, as well as paying out on any employee referral schemes. Training needs should also be accounted for with the average UK company spending over £1,000 per employee on training, as a new hire may not be immediately productive in terms of creating profit.
Maintaining the level
Whilst some elements of your company’s churn will be uncontrollable, it’s worth keeping an eye on the reasons people are leaving. Are they the preferred outcomes for your business? While unfortunate, this might be due to the employee taking a career break due to parenting needs or retraining in another field, both of those are usually due to outside factors. Or is there something more sinister happening within your business or the wider industry you’re not yet aware of that’s sparking a mass exodus?
To find out, key performance indicator (KPI) setting with weekly reporting, monthly reviews, and quarterly executions of the plans to refine opportunities are necessary. Those plans should be individually tailored with SMART (specific, measurable, achievable, relevant, and timely) objectives to provide recognition for accomplishments and offer employees the opportunities to change roles or advance in their career with you.
This may seem formal, but these touchpoints needn’t be overwhelming. Instead, they can be extremely useful barometers of progress and success for both employer and employee. They can help to detect any problems early on and help you avoid repeating mistakes with other employees. Whether it unearths uncompetitive pay scales, ineffective human resource management practices, micromanagement, or even unreasonable expectations, which can all lead to unacceptable levels of staff turnover. In addition, these reviews can help you to revise your recruitment and onboarding processes to suit your growing business needs.
In summary, it’s all about getting the balance right. To avoid loss of productivity, customers, and negative workplace culture, proactive churn management is an undeniable necessity. Too high and the employee churn starts to impact customer-facing outcomes and your bottom line, too low and you may have employees who stay with your company simply out of familiarity – rather than loyalty. If those employees are no longer motivated and engaged in achieving the company growth goals, this can start to rub off on new employees that are often the best source of the fresh ideas and new perspectives that keep the business innovating.
Ultimately, closing the digital skills gap is a huge task but by keeping your employee churn rate at a sustainable level, you’ll be better informed when sourcing new talent and retaining key employees to find the optimum level for your business success.