Turnover Can Hurt Your Bottom Line Profits
In today’s episode: We will walk through the 4 ways that turnover is impacting your sales but also your profits and how you can stop the bleeding
Here are the Show Notes from the Episode:
**keep in mind that show notes are raw and only highlight what is in the episode. Listen to the show for the full content**
Episode 33 – 4 Ways Turnover Costs You Thousands of Dollars a Year
The Local Small Business Coach Podcast
Welcome back to the Local Small Business Coach Podcast, I am your coach Tammy Adams.
Today we are going to play off our last episode where we discussed 7 reasons your turnover might be high. You might recall that we went over the most common reasons your employees or team members might quit or end up getting fired.
In this episode, I really want to discuss, why it is critical that you continually pay attention to your turnover and why you need to keep it as low as possible.
What a lot of business owners don’t realize is, high turnover actually can cost them thousands of dollars in lost sales and profits!
Let’s take a look at a few of the major areas high turnover hurts your local small business. Or for that matter, anybody’s business.
Let’s start with the most obvious and work our way up
- Cost of Hiring
When you lose someone, you need to replace them. We all know that. But have you ever put pen to paper and thought about what it costs for you to hire a new person? In order to do this, you need go back to something we discussed in the past and that is the cost of your time. If you time is worth $50 an hour for example and you have spend 5 hours on interviews and the hiring process, then you are already at $250. But that isn’t all. Take it to the next level.
What could you accomplish in those same 5 hours? How much in sales are lost due to you not working on money generating activities? For example, if you spent 5 hours on marketing, what would that return on investment be?
Now, you need to avoid the trap many folks fall into. They realize they don’t have 5 hours to hire the right person so they shave that down to an hour. The problem with this is, you are back in the vicious cycle of turnover as you might recall the #1 reason for high turnover is bad hires. So you MUST avoid trying to cut corners on your hiring.
If it takes you 5 hours to find the right person, then this cost will pay back in dividends down the road due to reducing the turnover problem. But more on that shortly.
- Cost of Onboarding & Training
Now, once you have hires these new folks, the next major expense you will have is your onboarding and training of them. Now you have time dedicated to their orientation, onboarding and training. You have the cost of another employee being pulled off what they would normally be doing so they can train the new person.
Depending on your set up, you also have costs in training materials, uniforms, tools, etc. While sometimes you can reuse, for some of you and for items, you are starting over with each person.
Don’t forget, you also have an employee who is working at 10% compacity when they start. While they do grow each and every day you still have losses as they get up to speed. Which brings us to our next item.
- Cost of Poor Customer Service
This one has two angles. First, let’s continue down the path of the new employee. Since they aren’t fully up to speed on their training or ability to help folks, you are losing sales due to them not being able to help as many folks as a fully functioning employee, nor are they at the level of doing add on sales or full packages. While they might give excellent service, it is normally at a much slower rate than you need. But the good news is, this gap should close quickly as they grow.
However, I want you to look at this cost of high turnover a little differently. Where you really have a high turnover cost in poor customer service is actually prior to the turnover. Think about it, many of the reasons we have turn over are due to negative reasons. Poor hiring, poor training, poor attitudes, lack of caring and lack of leadership, often leads to people that don’t care. When people don’t care, they don’t give great customer service. When they give poor customer service, your sales go down. When sales go down so do profits. You can only imagine how many sales are lost due to employees with poor customer service. This alone can add up to thousands a year per employee.
- Cost of Not Caring or Not Knowing
And since we are talking about it, let’s go over why your profits go down. We just discussed how poor service costs you profits but think about all the other ways your profits suffer.
Do you think employees with poor attitudes or poorly trained are doing their jobs to the standards you expect? If you have a food business, do you think they really care if they put the right amount of cheese in that taco? If I go back to my ice cream days for example, if an employee was doing huge scoops they were shooting the costs of goods up. But why would they do this? Either A) We never trained them to do it right in the first place or they just didn’t give a crap. Heck, they might even give away product to their family or friends?
These folks who are part of your future turnover are costing you tons of profits through their poor attitudes or poor job performance.
So those are the big 4 as I call them. Let’s recap real quick.
You are losing thousands of dollars in sales and profits due to..
- The cost of hiring
- The cost of training
- The cost of poor service
- The cost of not caring or not knowing
How do we come up with thousands of dollars?
To help give some meat to this, let’s take an example of just one employee.
Let’s say you have a poor hire. You spent a couple hundred of dollars on them during the hiring process, then after you spend money on their hiring materials and training program you are now up to say $1000 in costs just to bring them on to your team. In the next 90 days, they just don’t seem to get much better. They are late, call out and are terrible with customers. They also do poorly on their day to day tasks.
I think it is safe to say that they cost you at minimum $4,000 more in sales and profits during this time. So now, you are into them for $5,000.
But the odds are, they aren’t the one and only person you will hire and turn over this year. So what does this look like when you step back and look at the full year?
You know your loss is around $5,000 per person. Let’s say you lose just 10 people a year so now you are looking at a $50,000 loss. If you own a Quick Service Restuarant, your turnover is probably even higher than this! Plus, the odds are the $5,000 is low depending on how many sales these folks cost you during the time their attitude was poor or they were doing subpar work. The longer you kept them around, the higher this number could possibly be.
But let’s assume this $50,000 a year loss is a good number for your business. If you cut your turnover in half, you just put $25,000 back into your business. If that isn’t a huge incentive to get your turnover in line than I don’t know what will. By the way, experience has shown, this is a very low number. Most businesses that have a high turnover, tend to hold on to folks with bad attitudes, poor services, and poor job execution for a very long time, thus causing even more loss sales and profits than most.
I think you can see, turnover is a very costly part of your business. If you have employees or if you use temporary help, spend an hour putting some pen to paper and figure out what your particular cost per employee probably is. Then multiply that by the number of folks you turned over this past year. What number do you come up with?
By the way, say you are half wrong. Cut that number in half. I bet it is still a scary number!
Now is the time to revisit those reasons we discussed in episode 32 and why you want to put a gameplan in place to visit your top 2 reasons for your turnover.
By the way, even if you have a low employee turnover, how can you use this knowledge to push yours down even more? How can you change your hiring process to ensure you only higher the best? How do you ensure they are trained even better? We all have opportunity to improve.
If you have some great best practices to share on how you have lowered your employee turnover, I encourage you to please feel free to leave comments on the episode shownotes at localsmallbusinesscoach.com/episode33. I’d love for you to share your thoughts with others.
So until next time, remember, if you like what we are taking about, then make sure to subscribe to the podcast so you don’t miss an episode, if you love the podcast and what we are talking about, then please leave a 5 star review so other local small business owners know this is a podcast that they can’t miss.
And don’t forget to visit the website at LocalSmallBusinessCoach.com to leave your question for me to possibly answer on the podcast in the future. You can leave it via the Speakpipe button or just shoot me an email.
Meanwhile, I wish you the best in your business and remember: Great Customer Service, coupled with Great business practices will set you on the path to Great Profits!
Bye for now…..
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Two Great Books to Help You With Your Small Business:
Highly Recommend all Local Small Business Owners Read the eMyth by Micheal Gerber. You will learn some critical things about running your business.
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