What is the cost of turnover?
Also called replacement cost, cost per departure
Definition
The cost of turnover is the full cost of replacing one leaver: recruiting spend, interviewing time, onboarding, the new hire's ramp period, manager time and any temporary cover.
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The cost of turnover adds up everything one replacement takes.
Some of it is visible spend: job ads, agency fees, background checks. Much of it is time: hours spent interviewing, onboarding and covering the empty seat, and the months a new hire spends getting up to speed.
Also called replacement cost or cost per departure, it is a figure per leaver. Multiply it by the number of leavers to get an annual cost.
A cost figure is what gets a retention project funded.
It converts a percentage into a budget line, which is what turns a retention project into a funded one. Build the figure from your own salaries and time, not a headline multiple from an article.
You calculate it by adding up each part of the replacement.
- Recruiting: job ads, agency or referral fees, and recruiter time.
- Interviewing: the hours of every interviewer, at their hourly cost.
- Onboarding: training, equipment and the time of whoever trains the new hire.
- Ramp period: the output lost while the new hire gets up to full speed.
- Manager time: the hours the manager spends on the exit, the search and the handover.
- Temporary cover: overtime, contractors or agency staff while the seat is empty.
Formula
Annual cost of turnover = cost per leaver × number of leavers
Here is a worked example with round numbers.
Take an invented role paid $60,000 a year. Replacing one person in it cost $4,000 in recruiting, $2,000 of interviewing time, $3,000 of onboarding, $10,000 of lost output during the ramp period, $2,000 of manager time and $4,000 of temporary cover.
Worked example: one replacement
- Ramp period$10,000
- Recruiting$4,000
- Temporary cover$4,000
- Onboarding$3,000
- Interviewing$2,000
- Manager time$2,000
Cost per leaver
$25,000
10 leavers × $25,000 = $250,000 a year.
That is $25,000 per leaver. With 10 leavers from similar roles in a year, the annual cost of turnover is $250,000.
The same $25,000 is about 42% of the $60,000 salary. Expressing the cost as a share of salary is handy for a calculator, as long as the share comes from your own numbers.
These mistakes make the cost look smaller or bigger than it is.
- Counting only the agency fee and ignoring time, which is often the larger share.
- Borrowing a headline multiple of salary from an article instead of building the figure from your own salaries and time.
- Forgetting the ramp period. A new hire is on full salary long before they deliver full output.
- Using one figure for every role. Replacing a specialist costs more than replacing an entry-level role.
- Presenting the cost without the turnover rate behind it, so nobody can check the number of leavers.
Find out what turnover is costing you.
Put a number on it in about two minutes with the free turnover cost calculator, using your own headcount, average salary and turnover rate.
Calculate your turnover costFree, no signup required.
These related terms are in the glossary too.
The cost of a bad hire is what a hire who does not work out costs you in total, from sourcing and onboarding through lost productivity, manager time, exit and re-hiring.
Employee turnover is the movement of people out of a company over a set period, counted as the employees who leave and are replaced.
The turnover rate is the percentage of your workforce that left during a period.
Dysfunctional turnover is a departure that damages the organization: a high performer, a specialist, or someone hard to replace at any price.
Regretted attrition is a departure the company did not want: someone whose performance, skills or relationships you would have paid to keep.
Staff turnover is the same measure as employee turnover, and is the more common phrasing in the UK, Ireland, India, Australia and much of the Commonwealth.
These pages on this site go deeper.
Back to the HR glossary, where all 52 terms are defined.