The cost of the employee turnover

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All companies need to earn more than they spend to be successful long term. We are doing better and better each year, still we were burning some more, again.

We have been discussing the issues with the team, with investors and with my mentors. Of course one of the obvious things is that we need to earn more by acquiring more customers in Estonia and abroad and also by updating our product line to get more money from customers.

So far one of the main issues of SportID, why we are not yet profitable is the fact that we need to man our growth – meaning the more our system grows the more manpower we need. So that the costs are always ahead of the revenues. When we look that the sales number has grown remarkably then the margin is a small one, but still this needs to be reversed.

One of the problems in the last year was employee turnover. We lost no more and no less than 9 employees within 1 year. Let’s remind of how it went: Kaire, Kärt, Taavi, Artur, Mihkel, Eve, Ieva, Kristjan, Kristel. There are 11 names who are in our team now that were there also before 2018 and here I am counting in also our supporting powers like Ilme, Keijo and Sander.

There were 14 newcomers to the team 2018 and 2 of those were also among the leavers, so currently we have 12 employees who have been around for less than 1 year or so.

Recruitment is a pretty normal thing in rapidly growing companies. And like I mentioned before, we need the people to grow and we still need more. Also, it is quite normal that people leave from time to time for a new job. After all, slavery was lost in the southern part of Estonia in Livonia in 1819 – so 200 years ago.

Why is it expensive if employees leave company? There are several costs attached: recruitment costs of searching new employees and hiring them, the company loses productivity, loss of morale for the people who are staying, training and onboarding costs and the loss of knowledge and development speed within the organisation.

What is the normal rate of employee turnover? According to this article, the average turnover per month is 3,6%, which equals 43,2% on a yearly basis. The average number seems to be high and gives only 28 months of lifespan for an average employee in a company. But if we are looking what happened to SportID due to various circumstances, we see that we are even above the average of this. Turnover of 9/18 is 50% (18 being the number that started the year 2018).

Should we be a bit better and aim the average? I think not. If we believe that we are the cool employer on the marke and the place where people would want to work we should aim to keep this rate much lower than that. Maybe even 2-3 times lower than the average number.

There is an equation on that blog post that also calculates what is the cost of such a turnover for the companies. In our case, we can calculate it to be around 65 000€ and we know that some of our employees have added really a lot more to this number due to the fact that their leave was not the ordinary one and has several other costs attached. Most probably the total annual loss exceeds 100 000€ in our case. We could build a whole new mobile app with this money! Even if we would invest only a third of it to teambuilding we could still benefit a lot and also enjoy a much better environment at work.

So the aim for this year should be to create an environment where our people want to stay with us and bring new good hires on board as well. Everyone who thinks that they know the answer how to make things better, feel free to let me know about your ideas.

These rough calculations might make us think that things are really bad. But there is a ray of sunlight showing itself between the clouds. Starting from August up to today things are looking so much better. Within the last 6 months, this turnover has been 0 and we can all feel how this benefits the whole company. So let’s continue this way and make 2019 a lot better than previous one.

PS Proofreading of the post, I got an ideal response, asking would I prefer having a hole or an asshole in the team. Sure that the first option is preferable.  This post and the resolution of it, does not count the asshole factor at all and describes a situation where all employees would be ideal at their positions and the company would not want to lose any of them. In the real world this is not always the case.