The cost of people that leave the company

~~A few weeks ago, I got a phone call from Dana. I know Dana for several years. She works as a sales manager in Albania for a French multi-national. In 2015, she took the brave step to dismiss and to help her sister with her at that time small business. The sister of Dana owned a small shoe-factory in Tirana, the capital of Albania. After a few months Dana took over the business and became the sole owner. Reason was that Dana’s sister wasn’t happy with a leading position, she preferred more to be in the background taking care of all technical aspects. Dana used her sales skills very well because the company was growing rapidly. In 2 years, they grew from 100.000 pairs of shoes till now 1,5 million pair a year. In the meantime, they hired a lot of people and now they are employing 400 people. And the expansion is still going on.
Dana called me to ask my support to professionalize the business. Or to say it in her words: “I want that we build together the best company of Albania”. After the phone call, I booked a plane and I met Dana in her factory. Off course we visited first the factory and the warehouse. I was impressed by how she organized everything. People were clearly happy, smiled and worked hard. They had also the newest machines to work with and the whole atmosphere was very friendly. After the visit Dana and I talked a lot about her vision: “too build the best company in Albania”. In her vision that means that she wants the best towards her employees, customers and other stakeholders. That she asked me for support was logical for her she said. “in one of your workshops you told me that you like very much the moral of companies who put the employees on the first place, the customer on the second and the shareholders on the third place. You told me that the reason for that was that happy employees automatically take care for happy and returning customers. And happy customers take care that the shareholders are happy.” And that in contradiction with a lot of companies who put the shareholders as first and only are talking about shareholders value. Strange because companies who put employees on the first-place score significantly better in profit, turnover and customer satisfaction.
Dana is a smart woman who understands that she has the best results when all 400 people are happy and engaged. So, she took already some steps towards that. She is paying the people decently and she implemented a good performance bonus. She is also taking good care of their health. The company pays doctors’ visits and people have a free health insurance. She developed already some strong core values that she implemented in the whole organization: Ethics, goals, teamwork, innovation trust and customers. And besides this all she is also organizing events besides work. The last Christmas party was highly appreciated, and especially the Christmas gifts for the children. In the poorest country of Europe this means a lot for people. And we will develop much more in order to keep the people happy.
Dana also understands very well that turnover in staff in her young company is a big risk. First you have the extra financial costs. In my experience companies don’t acknowledge this in its right value. I will come back to this later. Also involved are the costs of finding someone new. And then you can have a serious problem if people with experience leave the so-called ‘brain-drain’. Last but not least there is also an effect on the morale. If some people leave the company for sure the engagement of the remaining employees will be lower.
Let’s come back to the financial costs. When people are leaving and you need to replace them you have extra costs in: recruitment, lost productivity, extra costs until replacement is found, cost of invested trainings, customer dissatisfaction and discomfort etc. etc. If you want a formula for the calculation of replacement costs: (Total staff x turnover of staff %) x (annual salary x 80%). The 80% is a rather conservative percentage, latest researches show that 100% is getting the new standard. 
An example: A company with 200 employees and a turnover of staff of 10% means that 20 people have to be replaced. If the average that the employee is receiving is 3000 RON then the company pays 5250 RON including the taxes per month. The annual salary is then 63000 RON What gives an extra cost of 63000 x 80% = 50.400 per person extra cost. In total for all 20 employees this means an extra cost of more then 1 million RON. Or 8% from your totally salary costs. That 1 million you can put in your pocket as owner of a company when you have happy and engaged people. Not mentioning the higher sales because of the customer satisfaction. In the case of Dana, she wants to invest in people in order to save money!!
Companies don’t see the turnover of staff as a costly problem. The reasons for that are that there are no processes in place to tabulate costs, the costs are also not reported to top management. Managers see it as inescapable costs in doing business or the see it as a HR problem. And last but not least the costs are underestimated so there is less concern.
Dana is a real smart woman!!

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