The Real Cost of Employee Turnover—And How to Stop It
- Alan Lowis
- Mar 31
- 7 min read
Employee turnover is more than a human resources problem. It’s a leadership problem. It’s a team problem. And ultimately, it’s a performance and profitability problem.
The true cost of employee turnover goes far beyond the expense of hiring someone new.
It disrupts culture, drains morale, frustrates managers, weakens client relationships, stresses out your teams, and eats away at your bottom line.
In this comprehensive guide, you’ll discover:
What employee turnover is really costing your company (and why it’s more than you think)
How to calculate your actual turnover cost
The root causes of turnover—and how much of it is preventable
Science-backed strategies to prevent turnover—actionable steps for leaders, managers, and teams
Whether you’re trying to retain your best people, build a more resilient culture, or reverse the tide of quiet quitting and burnout, this guide is for you.
What Employee Turnover Is
Employee turnover refers to the number or percentage of employees who leave an organization and are replaced by new hires. It includes:
Voluntary turnover: When an employee chooses to leave
Involuntary turnover: When the organization terminates the employee
A small amount of turnover is a natural part of any business—but when it becomes too frequent, it becomes a crisis. And while some turnover is necessary (promotions, internal transfers, retirements), most of it is costly and preventable.
What Causes Employee Turnover (And Why Much of It Is Preventable)
Employee turnover doesn’t happen in a vacuum. Every resignation or termination has a cause—and when you dig deep, the root problem is often not the employee. It’s the environment, culture, leadership, systems, and strategy.
Voluntary Turnover: Why People Quit
Employees voluntarily leave for a variety of reasons. While some may leave for personal changes or life transitions, the vast majority are looking for something better—or trying to escape something dysfunctional.
Top Reasons Employees Voluntarily Leave:
Better pay or benefits elsewhere
Lack of career advancement opportunities
Toxic or dysfunctional work environment
Micromanagement or poor leadership
Work-life imbalance or burnout
Lack of purpose or meaningful work
Misalignment with company values or culture
Conflict with coworkers or unresolved team issues
Lack of recognition or appreciation
Bad onboarding experience or unclear expectations
Stagnation—no opportunities to grow, learn, or evolve
Research shows that 40% of turnover happens within the first year—and a significant portion occurs within the first 90 days, largely due to unmet expectations, poor onboarding, or cultural mismatch.
Involuntary Turnover: Why Employees Are Let Go (And Why It’s Often Preventable)
Firing someone might feel like a necessary response to underperformance, but it’s important to ask why the underperformance happened in the first place.
Most employees don’t intend to fail. Many firings are preventable when companies invest in leadership, systems, and support.
Common Causes of Involuntary Turnover:
Poor performance due to lack of training or onboarding
Low engagement caused by poor management
Lack of clarity around expectations or priorities
Overwhelm due to unrealistic workload or poor systems
Team conflict, resentment, or lack of psychological safety
Cultural mismatch that should have been identified in hiring
Absence of feedback or support for growth and improvement
Bad hires due to rushed or misaligned recruitment processes
When leaders and managers are trained to coach, support, and develop their people—and when systems are built for clarity and success—many of these causes can be addressed before they result in turnover.
How Often Does Turnover Happen? (Frequency by Industry and Role)
Turnover happens more often than most leaders realize. In the U.S. alone:
50.6 million employees quit their jobs in 2022 (averaging 4+ million per month)
That’s over 2.5% of the U.S. workforce turning over every month
Voluntary turnover now makes up nearly 70% of all separations
Turnover by Industry (2023 Rates):
Industry | Turnover Rate |
Leisure & Hospitality | 79% |
Professional & Business Services | 57% |
Construction | 54% |
Retail/Trade/Transportation | 49% |
Manufacturing | 37% |
Education & Health | 39% |
Financial Activities | 29% |
Government | 18% |
Turnover by Job Level:
Role Type | Turnover Rate |
Executives | 5.4% |
Managers | 7.6% |
Sales Professionals | 8.3% |
Non-Sales Professionals | 10.2% |
White Collar Workers | 12.8% |
Blue Collar/Para-Professionals | 15.6% |
What Employee Turnover Really Costs Your Company
Aggregate Impact
Employee turnover costs U.S. businesses over $1 trillion annually
Turnover is often the most under-reported cost center in an organization
Cost Per Employee (Role & Tenure-Based):
Role Type | Estimated Turnover Cost |
Hourly Worker | $4,500 - $7500 |
Entry-Level Employee | 30%–50% of annual salary |
Mid-Level Employee | 75%–100% of annual salary |
Technical Employee | 100%–150% of salary |
Senior Leader | 200%–250% of salary |
C-Level Executive | Up to 213% of salary |
Employee turnover imposes multifaceted costs on organizations, extending beyond direct financial expenses to include productivity losses, cultural impacts, and customer satisfaction declines. To comprehensively understand these costs, let's delve into various dimensions:
1. Company Size and Turnover Cost
The financial impact of employee turnover varies with company size:
Small Businesses (<100 employees): Often face higher relative costs due to limited resources and the significant impact each employee departure has on operations.
Mid-Sized Companies (100–500 employees): Experience substantial costs, balancing between scaling operations and managing turnover expenses.
Large Enterprises (>500 employees): While having more resources, the cumulative cost of turnover can be immense due to the sheer number of employees.
2. Tenure-Based Costs
The duration an employee has been with a company influences turnover costs:
Short-Term Employees (<1 year): Replacing these employees involves costs related to recruitment and initial training.
Mid-Term Employees (1–3 years): Turnover costs increase as these employees have acquired more role-specific skills and knowledge.
Long-Term Employees (>3 years): Losses are most significant here due to deep institutional knowledge and advanced skill sets.
3. Productivity Gap Timelines
The time required for a new employee to reach full productivity varies:
Entry-Level Positions: Typically take several months to achieve full productivity.
Mid-Level Roles: May require up to a year for optimal performance.
Senior-Level Positions: Often need over a year to fully integrate and perform at peak levels.
During these periods, organizations face productivity losses and may incur additional costs for training and supervision.
4. Psychological and Engagement Impact
High turnover rates can adversely affect remaining employees:
Decreased Morale: Frequent departures can lead to uncertainty and reduced engagement among staff.
Increased Stress: Remaining employees may experience heightened workloads, leading to burnout.
5. Impact on Customer Satisfaction and Revenue
Employee turnover can negatively influence customer experiences:
Service Disruptions: New or temporary staff may not provide the same level of service, affecting customer satisfaction.
Lost Client Relationships: Departing employees may take valuable client relationships with them, potentially leading to revenue losses.
Maintaining a stable workforce is essential for preserving customer trust and sustaining revenue streams.
6. Cost of Preventing vs. Cost of Replacing
Investing in retention initiatives can be more cost-effective than dealing with turnover:
Retention Strategies: Include professional development for leaders and team members, team training on emotional intelligence, resilience & communication, competitive compensation, and fostering a positive work environment.
Cost-Benefit Analysis: While retention programs require upfront investment, they often result in long-term savings by reducing turnover-related expenses.
Organizations that prioritize employee satisfaction and engagement tend to experience lower turnover rates, leading to enhanced stability and profitability.
By comprehensively understanding and addressing these facets of employee turnover, organizations can develop targeted strategies to mitigate associated costs and foster a more stable, engaged workforce.
List of All Employee Turnover Costs You Should Be Counting
Losses due to turnover fall into three general categories.
Direct/Hard Costs,
Soft/Indirect Costs (which are substantial and should be looked at closely),
Ripple Effects (which are also substantial and costly).
Direct Costs of Employee Turnover
Recruitment Expenses: Advertising, screening, interviewing time of multiple employees, background checks, recruiter fees.
Onboarding & Training: Time spent training new hires, lost productivity during ramp-up (3–9 months to reach full productivity), supervisor time, team time helping to get them up to speed
Temporary Coverage or Overtime: Burdening current staff or hiring temporary help.
Separation Costs: Exit interviews, severance and PTO payouts, administrative processing.
Indirect Costs of Employee Turnover
Productivity Loss: Departing employees often disengage before leaving. New hires take time to reach full productivity. Loss of momentum and flow, errors and delays due to inexperience, Loss of context, insights, and informal processes
Vacancy Costs: Lost sales or delayed projects
Cultural Damage: Frequent departures create uncertainty and erode morale, Psychological safety diminishes. Increased stress and workload for remaining team members
Client Impact & Disruption: Trust and continuity with clients suffer when familiar faces disappear. Lower service quality, Lost relationships, Missed renewals or sales
Leadership Stress: Managers burn out from constant hiring and firefighting. Distracted from focusing on strategic goals.
Ripple Effects of Employee Turnover
Team Disengagement: When a high-performer leaves, others question their own future.
Lost Innovation: Departing employees take institutional knowledge, creativity, and client insight with them.
Brand Reputation: High turnover creates a poor employee experience, which spreads through social media and word-of-mouth.
How to Calculate Your Company’s Turnover Cost
Calculating turnover cost is done using the following formulas:
Basic Turnover Formula:
(Total Number of Separations ÷ Average Number of Employees) × 100 = Turnover % Rate
Employee Turnover Cost Formula:
(Hiring Costs + Onboarding Costs + Training Costs) × (# Employees × Turnover Rate) + Lost Productivity:All Other Costs* = Annual Turnover Cost
* Coverage or Overtime + Separation Costs + Productivity Loss + Vacancy Costs + Cultural Damage + Client Impact + Leadership Stress + Team Disengagement + Lost Innovation + Brand Reputation Impact
How to Prevent Employee Turnover (Science-Backed & Actionable)
Employee Turnover isn’t inevitable. Great companies create cultures and systems that retain top talent. That begins with leadership—not superficial perks.
1. Science-Backed Retention Drivers
Purpose and mission
Appreciation and recognition
Growth and learning opportunities
Inclusion and belonging
Autonomy and trust
2. What Leaders Must Build
Mission-driven culture
Clear systems for recognition
Transparent communication
Structured career growth plans
3. What Managers Must Do
Coach, don’t just direct
Check in often (not just about work)
Remove roadblocks to success
Create psychological safety
4. What Teams Must Feel
They belong
Their work matters
They are supported, seen, and valued
5. What We Teach (And How We Help)
Our programs help embed retention drivers into your culture:
Leadership development (inspiration, strategy, vision)
Manager coaching (communication, EQ, accountability)
Team development (connection, trust, collaboration)
We don’t just inspire—we help you implement and sustain.
Conclusion
Employee turnover is a silent killer of culture, performance, and profit. But it doesn’t have to be.
The cost is real. The impact is measurable. And the opportunity is massive.
With the right insights, tools, and training, you can:
Stop losing your best people
Strengthen your leadership culture
Build teams that are connected, resilient, and engaged
Ready to calculate your turnover cost and start turning things around?
👉 Use the Turnover Calculator
👉If you would like a FREE comprehensive guide to eliminating employee burnout, disengagement and turnover click here.
👉 Or Book a Call and talk with Alan about how we can help you reduce burnout, turnover, and disengagement creating a loyal, focused, dedicated team excited and committed to driving results together.
