When determining the True Cost of Not Providing a Training Program, it’s important to consider both tangible and intangible costs. Companies often make the mistake in cutting valuable training, or downsizing staffing instead of looking at how much it costs to continuously onboard new employees or what it would take to improve productivity.
“By changing the way you look at things, the things you look at change.”- Dr. Wayne Dyer
Long term strategic thinking is critical for executive managers to maintain when weighing training costs vs. employee turnover and needs. The fact that a highly trained employee directly correlates with a high level of productivity, efficiency, and retention should be reason enough to explore existing training programs, as well as, what training programs are lacking in your business. In economic downturns or contracting economies, understand there are measurables that need to be evaluated and considered prior to cutting staff. The most obvious measurables are tangible costs:
- Staff hours in human resources
- The hiring department’s time and resources to advertise the position (along with the actual cost of advertisement)
- Time to review resumes’
- Time to schedule and conduct multiple interviews
These are what most companies consider when determining turnover costs.
However, there is so much more to consider!
- Processing terminations.
- Performing exit interviews.
- Entering the details into the benefits systems.
- Time resources in putting together job offers.
- Onboarding costs like orientation training, benefits overviews, and entering new employees into the system.
Of course, these are just the expenses on the human resources side-of-the-house.
Intangible items to consider are:
- Stress on existing employees having to cover for the open position, and the quality of the product being produced when not at full staffing.
- Companies could be paying overtime to keep production up or even worse; the work just isn’t getting done.
- Each time staff is taken away from their work to perform on-the-job training there are additional costs that need to be evaluated.
- If the opening is in sales, consider the effects to the top line such as lack of lead generation or follow up. Many products have a lengthy sale’s cycle so with no one pursuing the lead, the cycle is extended drastically causing missed sales opportunities.
There are thousands of articles on the cost of doing business and the cost of turnover with off-the-shelf estimates. Those estimates might set the cost of an entry-level position turning over at 50 percent of salary; mid-level at 125 percent of salary; and senior executives over 200 percent of salary.
So, let’s put this into perspective. Basing the turnover cost at an average of 150 % for a $50,000 job costs the company $25,000 a year and that’s just one employee. If ten employees leave in one year at that salary, companies are losing $250,000 annually to turnover.
According to Training magazine’s 2018 Training Industry Report, the overall “total U.S. training expenditures declined 6.4%”. In addition, companies averaged $986 in training per employee. Using the example above, for small to mid-sized companies with less than 50 employees, who do not typically invest in a long-range training plan, losing just two employees could cost over $50,000. Most industry reports point to 10 percent as a good figure to use when estimating annual employee turnover. A company with 50 employees with an annual turnover rate of 10 percent (150% at $50,000/yr.) could lose an average of five employees or $125,000 in turnover costs.
By investing just $1,000 in training for each employee per year ($50,000) and cutting the turnover average to three people per year, the company is saving $50,000 in non-production costs and converting the money into high levels of training which directly correlates to higher levels of productivity, efficiency, and production.
In the end, NOT training just doesn’t make sense!
According to a recent Forbes article on the “6 Reasons Your Best Employees Quit”, not having access or given developmental opportunities is #4. Spending just 1-3 percent of your salary budget on training can yield huge returns for companies of all sizes.
Companies can no longer look at implementing a training program as a ‘nice-to-have’. In today’s workplace, it’s not only an expectation, it’s a source of competitive advantage; as-well-as a win-win for both employees and employers. Be aware of the True Cost of Not Providing a Training Program.