The Cost and Implications of Turnover

Employee turnover is a significant concern for organizations. Some industries report experiencing turnover rates as high as 50% in critical roles. Not only does turnover significantly impact the consistency and stability of operations, but it also results in substantial costs. Gallup estimates that replacing an employee can cost between one-half to two times their annual salary. Based on an annual salary of $52K, for a 1,000-person organization with a 50% turnover rate, this could result in replacement costs from $13 million to $54 million per year¹.

However, the cost of turnover extends beyond financial implications. It places a burden on managers and trainers who must continually reskill and recruit new team members. In the coming decade, the Organization for Economic Co-operation and Development (OECD) predicts that technology transformations will significantly impact 1.1 billion jobs1. Organizations will face increasing pressure to address the looming skills gap and navigate the recruitment and onboarding process 1 with new or retooled systems and processes.

Given these challenges, many organizations recognize the pressing need to prioritize employee retention as a key performance indicator (KPI).

The Business Case for Retaining Employees

Here are the reasons why employee retention deserves attention:

  1. Cost avoidance: As the Gallup research and estimates show, turnover, with its associated recruiting and training costs, results in bottom-line impacts that can be significant. Those funds are better placed investing in innovation and development elsewhere in the organization.
  2. Consistency and stability: Employee turnover interrupts operations and creates instability particularly when departures occur in critical roles. Achieving organizational strategic objectives requires steady, intentional and focused execution. Preventable turnover can be an unnecessary distraction.
  3. Knowledge retention: Tenured employees accumulate institutional knowledge that is irreplaceable and task expertise that is invaluable to an organization. Retaining experienced employees enriches the organization’s tacit and implicit knowledge pools.
  4. Improved morale: When a focus on retention is centered on improving the employee experience, creating an environment where employees feel valued and providing development opportunities, individuals are more motivated and engaged in their work. Additionally, a reputation for high retention rates can help attract top talent looking for a supportive work environment.
  5. Enhanced customer experience: Tenured employees often have a much deeper understanding of the organization’s products or services. They may have established strong relationships with clients or built connections that are essential to continued or future business. This knowledge can result in unmatched levels of personalized and high-quality customer experiences.

The Key Factors of Employee Retention

Retention reflects the organization’s effectiveness at creating a work environment that fosters employee engagement, job satisfaction and career growth. Retaining employees requires attention to key factors such as compensation, benefits, career advancement opportunities, work-life balance, organizational culture, management style and employee recognition.

By examining and understanding the factors influencing retention, organizations can:

  1. Identify issues to pinpoint the root causes of employee turnover and take targeted actions to create a more positive and supportive work environment.
  2. Improve employee satisfaction that results in increased productivity, accelerated innovation, consistent service, better communication, collaboration and problem-solving – the list goes on!
  3. Enhance company reputation to position the company as an attractive destination for job seekers, particularly those who have in-demand skills and are selective about their career choices.

The Data that Matters

To understand the key factors that drive engagement and retention organizations must gather data directly from the employees. Relying on subjective anecdotes or incomplete exit interview data limits the understanding and may result in ill-defined actions.
Exit interviews, while valuable, only provide insights into the reasons why individuals left. The interview information doesn’t capture the perspectives of current employees who remain. To bridge this gap, organizations can make a relatively small investment in gathering data that reveals what is important to individuals before they make the decision to leave.

Talent Dimension’s Retention Gauge assessment offers organizations a comprehensive view of employee preferences and identifies potential trouble spots. By gathering this data, organizations can gain valuable insights into employees’ needs, expectations and areas for improvement. These insights enable organizations to make informed decisions and implement targeted initiatives to enhance retention and create a positive work environment.

If Not Now, When?

Costs of turnover will continue to grow. Employee experience is closely tied to customer experience and savvy consumers are increasingly making choices based on organizational reputations. Talented people are making informed choices about whether to stay or join organizations. So, for organizations, the option exists to avoid unnecessary costs, provide consistency, retain knowledge, improve morale and be an employer and organization of choice – to discover the drivers and take meaningful action now.


¹ Gallup. “The Impact of Turnover on Companies.” Breaking News, U.S. Politics, Opinion, and More. Accessed 14 Sep. 2022.