Strategic HR Weekly "Sales" Tip #40
"Soft Costs" Yeah, right...
Back in April (Tip 21) we talked about to how to better phrase the turnover cost discussion when we speak with stakeholders. I was reminded of that again recently when I heard an HR consultant refer to some of the costs of turnover being "soft costs". That's a benign term that doesn't motivate anyone to do anything.
I advised them to change that term to "wasted wage costs" and "lost profits cost". So one could group the "costs" of turnover into 3 categories:
Unfortunately, when turnover is discussed in many businesses only the first category gets most of the attention. We paid to run an ad. We paid a placement firm. We paid for post offer drug testing. We paid for a training class. All easy costs to "look up".
- Fees and charges
- Wasted wage costs
- Lost profits cost
But the other two categories are often bigger than the obvious fees/costs mentioned above. Why? Because no business hires an employee with the intention of them underperforming or doing nothing. A wage is paid in return for a accomplishing a task(s) from which it is anticipated that directly or indirectly, more money will be generated than the wage cost of the hired employee.
If you look at the examples of turnover financial analysis in the picture above (Note: the 2 graphs have very different scales!), a low to mid level administrative person could have a conservative negative impact of $7,600, while a biz dev person at a professional services firm could easily be $43,000.
The only argument for "soft" about those costs might be the lost profits costs in the red outlines, because technically the business never had the money in hand in the first place.
One of HR's strategic business purposes is to Maximize Business Productivity through "the people side" of the business - a.k.a. Maximize Employee Productivity. As seen in this Tip, no matter how you look at it, Turnover is a huge drag on that objective.