The Hidden Cost of Doing Business – Employee Turnover

As business owners, often we think of the cost to do business as expenses such as salaries, software, office space rent etc. However, there is another cost, that is often hidden overlooked that can often at times, be much more significant.

In today’s blog, we explore a topic more business owners / c-suite, hiring managers and HR departments should be discussing much more often – the true cost of employee turnover. TTG’s blog will explain to readers some of the variables that go into calculating the cost of employee turnover as well as the formula used to calculate the cost of turnover so that our readers can complete the exercise in their own business.

Some context for today’s discussion:

·         Average turnover rate in the US is 11%

·         Turnover rate varies greatly by industry, region and occupation

·         Replacement cost figures do not include indirect costs such as lost team performance or lost institutional knowledge

·         It does not take into account Recruitment Agency fees to backfill openings

What are the key financial benchmarks of employee turnover?

·         Average cost to fill one position: $11,000 (excluding agency recruitment fees)

·         Average cost to fill positions is significantly increased based on the turnover rate in the business

·         Understanding the business turnover rate is a critical HR & Operations KPI

·         Total turnover cost: typically, 30%–250%+ of an employee’s total annual compensation

·         These figures account for recruiting, hiring, and onboarding - but exclude broader impacts such as lost productivity and reduced morale.

·         Even small reductions in turnover can lead to significant annual savings.

How do we calculate a business’s turnover rate? Turnover rate is a simple calculation that takes the total number of employees that left the business divided by the average number of employees in the business multiplied by one hundred. We can calculate the average number of employees in the business by adding the total number of employees on payroll on January 1st and the total number of employees on December 31st of the same year divided by two. We can then calculate the turnover rate by dividing the total number of employees who left the business in a calendar year by the average number of employees in the business multiplied by 100. This can be expressed in the following formula:

       Average employees = (employees on payroll Jan 1st + employees on payroll Dec 31st) ÷ 2

            Turnover rate = (number of employees who left ÷ average employees) x 100

Example: A mid-size manufacturing company grew from 80 to 100 employees in 2025. 10 employees left during 2025. How do we calculate the manufacturing companies’ turnover rate?

                                   10 ÷ ((80 + 100) ÷ 2) × 100 = 11.1% turnover rate.

What does a 11.1% annual turnover rate equate into business loss revenue?

For a mid-sized organization with 100 employees and an 11% turnover rate:

·         Replacement Fill Costs (per position):

·         $11,000 × 11 = $121,000 annually

Broader Turnover Cost Range:

·         30%–250% of annual salary (based on $85,000 average salary)

·         Low estimate: $280,500

·         High estimate: $2.3 million

Total Annual Impact: $121K–$2.3M+

Potential Cost Savings Through Retention

TTG can implement effective retention strategies - like stay interviews - can significantly reduce turnover.

Example Impact:

If stay interviews improve retention by 20%, that reduction translates directly into 20% fewer

separations and associated costs.

Bottom line:

Based on the above manufacturing example, at the 20% reduction in turnover, annual savings would be between $24,200 - $460,000.

Visit us at www.ttgway.com to learn more about how we can support your business.

If you’re ready to take the next step, email us at sales@ttgway.com to discuss how we can tailor our solutions to your organization’s needs.

Source: Vensure Employer Services, 2024