Why Your Business Should Include Turnover in Financial Reporting

financial impact

We all know that high turnover can negatively impact an organization, but what are we doing about it?

The first step to tackling turnover requires understanding what is going on within your organization. Once you have the data you can make informed decisions about the necessary steps to reduce turnover and appropriately prioritize your plan of action.

When looking at reporting out on turnover it should be viewed as a financial metric, because when you get down to it turnover has a financial impact on your company (and it may be bigger than you realize). All other kinds of assets and their value are reported out on in financial statements, and the biggest asset of an organization is its people so it makes sense to monitor turnover the same way you would your other business assets. The inclusion of turnover into other financial statements will also help to keep the figures top of mind and provide context for how turnover can impact other areas of the organization.

How do you measure turnover as a dollar value? There are a couple of things that you may want to consider when developing the equation that is specific to your organization. If you’re completely new to measuring this there are quite a few helpful guides that help outline how to determine the turnover rate in your organization. Once you know the turnover rate you can do the more nuanced calculations about how it impacts your business.   Think about the particular hiring challenges that your business may face, this metric can vary greatly by industry and location. Take a data driven approach when figuring out whether it takes six months on average to hire for a position as opposed to 30 to 60 days.

Additionally, think about how long it takes for an employee to be fully trained and performing at an optimal level. This also will vary based upon the industry and whether your company has unique or different ways of doing things that need to be learned by all new employees. Realistically, if your new employee just got done with an orientation they probably aren’t performing at the same efficiency as someone who has been in the role for several months, let alone several years. This is a metric you may want to think about in terms of measuring the first month at low percentage of efficiency while they’re in training and then ramp up to them being counted as an optimal performance employee.    The cost of training isn’t isolated to the new employee either; it takes the time of an existing employee(s) to step away from their current workload to help bring a new person up to speed.

Once you have done these calculations you may be surprised to see just how big of a dollar value is associated with turnover. One industry analyst, Josh Bersin, wrote about what many studies have shown to be the financial impact to an organization for losing an employee, and the cost can range from tens of thousands of dollars to 1.5-2x their annual salary. Bersin’s analysis takes my previous recommendations a step further and looks at the ripple effect that can happen when an employee leaves including lost engagement from other employees, customer service errors and errors in business operations and cultural impact.

Does your organization currently report out on turnover? What kind of a financial impact does it have on your business? To calculate the cost of your employee turnover, use this form provided by AcuMax. I would be very interested to hear from you about how your organization is working with the data you have available.