By putting a dollar figure to the costs you incur when an employee leaves, you can determine what you're willing to spend to make sure your best people stick around. Human resources specialists will tell you that the cost of replacing an employee is anywhere from 30% to 150% of that employee's annual salary. That's a wide range — too wide to be useful. But that's because the numbers are different for every company, and even among employees at the same company.
To get a more accurate picture of turnover costs, several consultants and human resources services have developed cost-of-turnover calculators. These compile turnover-related costs including hard costs, such as the man-hours spent by other employees filling in for the departed employee, and soft costs, such as the departing employee's reduced productivity in the time before he leaves. A number of calculators are available, varying in cost and complexity. Caliper, an international consultancy, offers a basic calculator for free online (www.caliperonline.com) as does the Department of Labor ( www.dol.gov).
A more comprehensive but complex option is the Bliss-Gately tool (www.blissassociates.com; $249 for one user, $999 for a site license), a series of Excel spreadsheets developed by consultants Robert Gately of Gately Consulting and William Bliss of Bliss & Associates in Butler, N.J. The Bliss-Gately calculator includes dozens of input fields, accounting for costs such as the administrative expense of recruiting, hiring, and training a new employee; and drills down to include costs such as the man-hours a supervisor spends figuring out how to cover for the departing employee.
The calculator also factors in the value of the departing employee, weighting its calculations based on what role the employee played in the company and whether he was a top, middling, or poor performer. By tying the departure of high- or low-performing employees to their managers, owners can measure each manager's success at retaining key employees.