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The Fulfillment Doctor on...Employee Turnover...What Does It Really Cost You?

Many companies see turnover as a necessary cost of doing business, especially in managing a call center or a fulfillment center. However, have you taken a good look recently at your staff turnover levels and the actual dollars this costs your company? Whether it is in fulfillment or in the contact center, the costs are high. Industry turnover averages are hovering around 40%-50%. In many call centers it may unfortunately be as high as 90%-100%. Industry experience is that turnover costs range from $3,000 to $10,000 in people time, training, testing and the ramp-up to full production. This does not include expenses for agencies, ads, etc. which must be added on.

As you research your turnover rate, here are some points to take into consideration. 
Statistics you’ll want to collect:

• Number of employees hired
• Number of employees who started training
• Number of employees who leave while in training
• The number who leave once they graduate to the production staff

Analyses you’ll want to undertake:

• The amount of time and associated costs for the human resources department, supervisors and managers to recruit and interview
• Reasons for leaving (collected during exit interviews)
• Length of the training class (training overload or under-training?)
• Size of the training class (amount of personal attention)
• Schedule availability of the trainer to conduct the classes
• Costs for testing, background checks, drug testing and skills testing
• Mentoring/coaching time and cost for the agent and the coach
• Length of time and cost to get up to speed and be part of the production staff

Develop a Turnover Report

Using the contact center as an example, you need to have a defined beginning point from which to measure turnover. Let’s say you start analysis April 1st (new quarter, start of the month) and your headcount is 100. You hire 10 in the month of April and you lose 17 employees. Your turnover rate is 15.5% and you have a net headcount of 93. 

100 + 10 – 17 = 93 ….. 17 divided by 110 = 15.45%

In May you started with 93, added 25 new employees and lost 30 employees.  Your monthly turnover is 25.4% and your year-to-date turnover is 34.8%. 

93 + 25 – 30 = 88 …..   30 divided by 118 = 25.42%; year-to-date total 47 (employees that left) divided by 135 (starting count + new hires) = 34.8%

In June, you start with 88 employees. You add 40 new hires and you lose 47 employees; your ending headcount is 81. Your turnover rate is 53.7% for the quarter. 

88 + 40 – 47 = 81 …. 47 divided by 128 = 36.72%

Cumulative total for the quarter is 94 divided by 175 = 53.7%

YIKES!!!!!

To sum it up, your report might show the numbers as follows. Add the appropriate cost columns depending on your research above.

Period	Starting Count	New Hires	Total after new hires	Employees Lost	Net	Turnover	Total after new hires	Total Lost	Turnover
April	100	10	110	17	93	15.45%	110	17	15.45%
May	93	25	118	30	88	25.42%	135	47	34.81%
June	88	40	128	47	81	36.72%	175	94	53.71%

I think when we walk through these calculations it illustrates the magnitude of the amount of staff churn.

If that was not scary enough, now multiply the lost employees times the $3,000 to $10,000 we mentioned earlier (or whatever it costs your company). 

94 lost employees times $3,000 = $282,000
94 lost employees times $10,000 = $940,000

As companies seek to understand turnover, many companies that use seasonal labor subtract those that were hired for the season and were terminated at season-end from their effective turnover rate. The turnover rate should be calculated both in total and after seasonal labor is subtracted.

There is another, and maybe more important, aspect to turnover – the effect on customer service and customer confidence. New employees don’t know the products as well. They aren’t as sure of the company’s policies. They may get flustered when confronted with an irate customer. You are less apt to trust new employees or empower them to the degree you do seasoned veterans. Look at the cost of quality vs. the cost of failure to meet your customer’s expectations. The cost of correcting an error is between $35 and $50 in any company. And worst of all, a dissatisfied customer may shop another multichannel company. In my mind the high service marketers in our industry are L.L. Bean, Lands’ End, Cabela’s, and Coldwater Creek – great models for many of us.

A path to proceed on is:

1. Set up a system to track and calculate employee turnover monthly. 
2. Spend the time to research and answer the issues that are raised about turnover.
3. Establish an exit interview process to learn more about why people leave.
4. Look at the turnover by months and years of service. Are you seeing turnover with long term employees? New hires?
5. Calculate the cost of recruiting, training and losing an employee and get management to understand the reasons and the costs.
6. Set up a spreadsheet that will let you enter the monthly data and calculate the turnover and the cost to the company.
7. From there establish a plan of action for change. 

Summary
Turnover is expensive, not only in operations costs but more importantly, in how we serve the customer. Your turnover may be contributing to lower sales generation.

Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com