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The cost of high employee turnover

04.01.2013
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The attrition rate on Jitka’s ICU ward is incredible.  In the year or so she’s been working there, an entire shift of nurses has left the unit.  Those people are often amongst the more experienced, so not only is there the considerable expense of advertising, recruiting and on-boarding new staff, there is also a significant drop in the skill and experience level on the ward as younger nurses replace more experienced ones.

An interesting study was published earlier this year looking at the impact long shifts had on turnover rate, with a clear correlation between the length of the shift and employee turnover.  A second study has provided stark evidence as to why high employee turnover has a direct impact upon your bottom line.

The target for researchers was the service sector.  They wanted to analyse the impact employee turnover had on the relationship between customer and supplier, and thus the impact on the bottom line of the companies involved.  The research investigated over 60 offices of a service company, with over 40,000 customers over a six year period.  The company in question dealt directly with customers to match IT workers to temporary assignments.

The findings were quite telling.  Turnover rates at the various offices were incredibly different.  Some had a relatively low rate of just 10%, whilst others scored a remarkable 76% attrition rate.  That was just from voluntary movement.  They also found forced redundancy rates ranging from 4 to 28% in a year.

Building customer relationships (or not)

The researchers discovered that customers valued strong relationships with employees at the company.  They consistently rated offices with low staff turnover higher than those with high staff turnover.  This was the same whether the turnover was voluntary or forced.  The loss of employees led customers to think worse of the company’s performance.

This had a direct impact upon the bottom line.  The offices with a low customer experience score had profits of just under $500,000 on average.  Those with higher ratings however had profits of just under $2 million, four times as much.

“These findings highlight the financial benefits of creating positive [service brand image] in the minds of customers, as well as the importance of controlling employee turnover, and improving customer orientation and service delivery levels,” the authors write.

Customer relationship management is a rapidly growing area, but so often that focuses on IT based systems whereby the relationship is between the customer and the company.  This research provides an important reminder that often the relationship is between individuals, especially in a service environment, and that high turnover can have a lasting impact upon your profits.

Republished with permission