Why Replacing a Good Employee Will Cost you $65,510

“Oh no! I didn’t know you were leaving, too.”

When a friend left his job, his coworker made the surprise comment that he was about to leave the company as well. What seemed like a few minor problems on the team soon snowballed into a costly mass exodus.

Employee retention is one of the most overlooked aspects of managing your team…right until you start losing good employees. It costs much more than you might expect to replace them. I was curious myself just how much it could cost and the surprising results are below.

Note: All salaries are assumed to be $100,000, which is $40/hr assuming you work 50 hours a week for 50 weeks a year. Adjust the numbers accordingly if anyone costs more or less for you.

The Costs of Sourcing a Hire:

Unless you’re a really hot company, it’s unlikely that great people are beating down your door to fill open roles. And even if you are well known, the best people probably aren’t refreshing your jobs page for an opening. You have to go find them.

You can source candidates a ton of different ways, but they all cost money either in the form of payment to another company or in time invested by one of your employees.

Sourcing CostsWith just a few attempts at sourcing some good hires, between third party costs and labor in your company, sourcing costs can easily reach over $26,000. The scariest thing is, you haven’t even interviewed any of these candidates yet!

The Costs of Interviewing a Hire:

Now that you have a full funnel of candidates kickstarted, you start the dreaded interview process. You’ve got to filter through all the LinkedIn profiles, social accounts, resumes, and cover letters to find those gems who will then navigate your hiring process.

Here the costs are a bit more hidden. It’s all about lost time for various team members. What other great work could your team be doing instead of working on candidate hiring? Every minute spent hiring is a lost dollar invested in your business.

Assuming you have a clear funnel where you only have to look at 120 resumes, only have a third of them make a phone screen, a quarter of those make it to in person interviews, and you prep 3 offers, interviewing costs you over $5,000. For some specialized roles it could be significantly higher if you have many more interviews and phone screens.

The Cost of Onboarding a New Hire:

Congratulations! You found the candidate you’ve been looking for. Now you need to onboard them so they become a productive, integrated member of your team. Again, you have hidden costs. Now, you have losses both in how productive a new hire is versus a veteran on your team, and your team training them (an important investment, but also a significant time sink for your team).

When you hire an employee, there’s often some kind of bonus you need to give them. It might be a salary bump, moving costs, or something else to sweeten the offer. It’s part of the cost of doing business. When you combine that with your costs as they start on your team and get up to speed, onboarding can cost you over $10,000.

Of course, we’re assuming your hire works out, which unfortunately, it won’t always. You can go ahead and double these costs and many of the ones in earlier sections if you have to go back to the drawing board on another candidate.

The Cost of Lost Productivity:

While your team member has departed, the show must go on. The rest of your team has to cover for them, whether that means writing their code, calling their leads, or finishing their reports. As much as you’d like to think the rest of the team can just make up for them, if the hire really was good, that’s impossible. Lost ProductivityWhen someone leaves, team members are distracted. Those that were close to them in particular will be less focused and productive. They’ll probably grab beers with their friend before they leave, when they otherwise may have worked late.

Meanwhile, if you push your team to cover for them, the stress and extra hours can affect their physical and mental health, which will lead to vacation and sick days. If hiring drags on, you’ll probably hire a consultant or freelancer to cover which could easily exceed $100 an hour for their work.

All of this combines to lead to a Productivity loss cost of over $24,000.

So let’s add this up…

Total Costs

Ouch! Replacing even a single team member is expensive! Wouldn’t it be a lot cheaper to retain all your good people?

What can you do?

Next time a good employee asks for a raise, investment in equipment to help them on their job, or a morale boosting opportunity is presented, consider the cost of losing them before saying, “we have no budget for this.”

If your manager is blocking you from helping your team, remind them what you’re asking for is a lot less than the $65,000 cost to replace a lost member of your team (let alone the cost of multiple losses!).

While free lunches, ping pong tables, extra vacation days, and other perks are a nice bonus, they aren’t what keep people at a company. Even raises only satisfy people for a short period of time.

What really retains teams is managing people well.

This comes by having discussions with them about their personal growth & goals, company and self-improvement, and recognizing the things that are important to them personally.

I know that’s easier said then done. You have a million things on your plate as a leader and what little time you can spare has to be maximized. And it probably isn’t right now.

You have notes on people all over the place. One on ones are sporadically effective, because you may not always be prepared for the next one. Goals are a great idea in theory, but they’re buried in your HR app you can’t stand.  There must be a better way.

Get LighthouseThat’s why I started Lighthouse. It helps you stay on top of what matters quickly and efficiently for each of your people. It’s designed with managers like you in mind, because I’m a manager myself.

If you want to be the manager people love to work for & save the costs of replacing people, sign up at GetLighthouse.com.

What to Expect When You Start Having 1 on 1s

Ben Horowitz advocates for 1 on 1s. So does Marc Benioff, the team at Bufferapp, and many, many others. Yet, in many ways they’re still shrouded in mystery.

Some people see them as a waste of time. Others are unsure how to make the most of them. Ask 10 managers and you very well could get 10 different answers.

If you’re convinced to get started with 1 on 1s, and never done them before, you’re in for a few surprises. Here’s a few tips for what your should expect:

1) They are different than any other meeting

As a manager and leader, you’re in a lot of meetings. Probably more than you should. And in most of them you’re being asked to give your opinion, make decisions, and answer questions that all focus on driving the business forward. One on ones are nothing like that.

As Ben Horowitz suggests after he took some heat for his firm stance on the importance of having 1 on 1s,

“The key to a good one-on-one meeting is the understanding that it is the employee’s meeting rather than the manager’s meeting. This is the free-form meeting for all the pressing issues, brilliant ideas and chronic frustrations that do not fit neatly into status reports, email and other less personal and intimate mechanisms.”

It bears repeating: One on ones are all about the team member, not you nor the company. You need to flip your mindset to thinking about what’s important to them and how you can help. This context switch can be difficult, but the payoff is huge. Set the standard that you recognize that these meetings are different from other meetings and you’ll be on your way.

2) You will learn important things you won’t hear any other way

You may think you know your team really well. You may think you know everything they’re thinking about for work and have addressed all their concerns they’ve aired publicly. If you’ve put in some effort to listen to your team in a group setting, that’s a great start, but there is always more they’ll bring up privately in 1 on 1s.

As URX CEO John Milinovich recently said in his interview with First Round Capital,

“There will always be things that people won’t bring up in a community forum that are still so important to address, especially before they become bigger issues.”

Build a trusting environment in your one on ones and follow through on what you hear and you’ll be amazed at what you’ll learn people are thinking about or have concerns with. The more you act on what they confide in you, the more they’ll share that will improve the company, your team, your management, and them as an employee. For the introverts on your team, who are less likely to bring up any issues publicly, this will be especially important.

3) They should bring things to talk about, and so should you.

It’s easy to put the obligation on your team member to drive the 1 on 1. It’s definitely important to let them talk about things that are important to them. However, especially early on, you need to bring some questions as well.  There’s a ton of different 1 on 1 questions you can rotate through and you can also use 1 on 1s as great coaching opportunities.

As Jason Lemkin (CEO EchoSign, VC @ Storm Ventures) writes,

“You may think you know if you have drinks together, or go see movies together, or whatever…But you don’t.  Even if people complain in that context, it will be general complaints.  You won’t learn what your top people need to find their growth path at your company.  Where they feel stalled out and frustrated.  You have to ask.

By mixing up the questions you ask, you will ensure you’re not missing anything they may be afraid to bring up.  You’ll also avoid 1 on 1s getting into a rut where certain topics become safe and easy, at the expense of never discussing any elephants in the room. You get out what you put into your 1 on 1s, so prepare, listen carefully, and follow through.

4) They may be a little awkward at first

Your first one on one won’t be easy. It can be especially awkward if you recently got promoted and now you’re having a one on one with a former peer. Fight through the ‘fight or flight’ urge to not ask the questions a manager should ask in a one on one. Those early questions will break the ice and give you your first opportunities to build deeper trust and rapport with them. Over time, you’ll get in a rhythm and build trust. Then you’ll probably even look forward to them.

Stick with them. The benefits are huge as Michael Wolfe (PipeDrive, Vontu, Kana) wrote,

“Over time you can build up a very good relationship with most people simply through this time investment. Even though you may need to discuss tough issues, try to build up enough trust and openness between you that you can enjoy solving problems and working to make the company better.”

It’s a relief when a problem at work is solved. If you form a real partnership with your team member to address the issues they bring up, they’ll trust and respect you more even if you don’t always give them the answer they want to hear.

5) You will quickly learn why this is a manager’s best tool.

The conversations in one on ones are the keys to understanding your people and motivating them.  Everyone has different drivers and idiosyncrasies; the better you understand them, the more effective you’ll be able to work with them.

As Ben Horowitz notoriously recalls when he almost fired two people over a manager not having one on ones,

“Being a good company doesn’t matter when things go well, but it can be the difference between life and death when things go wrong…and things always go wrong.”

Unfortunately, if you don’t do one on ones, Ben continued,

“…there is no possible way for him to even be informed as to whether or not his organization is good or bad.”

You can fix so many problems and improve the morale of everyone on your team with these meetings. You’ll find out about issues before they blow up. You’ll be able to help people when they’re struggling, and give them good and bad feedback regularly.  You can talk about career goals and growth opportunities regularly. Bit by bit you’ll see improvements across your company and you’ll wonder why you didn’t do them sooner.

black_alphaWant help getting started with one on ones? Want to build a better relationship with your team members?

Lighthouse keeps you organized and prepared for everything that matters to your team members including goals and 1 on 1s. Learn more at GetLighthouse.com