Unmasking the True Cost of Employee Turnover in Your Agency

Employee turnover can make any agency owner nervous. In the fast-paced world of digital marketing, where talent is your most valuable asset, losing employees can feel like a punch to the gut. But beyond the immediate frustration and scramble to fill the gap lies a silent budget killer that can significantly impact your agency's bottom line.

What is employee turnover, exactly? Simply put, it's the rate at which employees leave a company. While the phrase is often used interchangeably with employee attrition, there's a subtle difference. Attrition usually refers to employees leaving and not being replaced, like in the case of downsizing. Turnover implies replacing those who leave.

The unique challenge for agencies

Agencies, especially those in the digital marketing space, face a unique challenge regarding employee turnover. Why? Because agencies are often project-based, relying on specialized teams with individuals possessing specific skills and knowledge.

When a key team member leaves, it disrupts the workflow, impacts project deadlines, and can even jeopardize client relationships. This gets even worse due to the constant pressures of agency work: demanding clients, tight deadlines, and the constant need to adapt to new technologies and marketing trends.

The real kicker? The cost of employee turnover often extends far beyond just finding a replacement. There's a ripple effect of hidden expenses that can silently drain your agency's resources.

The direct costs of employee turnover

These are the costs that are easiest to see and quantify. They include:

• Recruitment costs: Consider advertising your open position, paying recruiter fees (if you use an agency), or even listing fees if you only use job boards, and the internal time spent reviewing resumes, conducting interviews, and making hiring decisions. These costs can quickly increase, especially for specialized roles like SEO specialists or experienced web developers.
• Onboarding and training costs: Once you've hired someone, you must get them up to speed quickly. This involves training materials, dedicated trainer time, and a period of reduced productivity as the new employee gets up to speed and integrates into your agency's workflow. 
• Severance and exit costs: When an employee leaves, there might be severance pay, administrative costs associated with processing their departure, and the time spent conducting exit interviews.

The indirect costs of employee turnover

These costs are often harder to pinpoint but can be even more damaging to your agency. They include:

• Project delays and disruptions: Losing an employee means losing valuable institutional knowledge. Projects can get delayed, deadlines missed, and overall team productivity can suffer as the remaining team members adjust, and a new hire gets up to speed. This can lead to further frustrations among the team members who are forced to carry the slack. 
• Reduced billable hours: An empty chair means no billable hours. Even when the position is filled, the new hire must learn before operating at full capacity. This directly impacts your agency's revenue. For example, if a client pays for 20 hours of social media management per week, you and your social media manager leave; those hours can't be billed until a replacement is found and trained.
• Client dissatisfaction and potential loss: Turnover can lead to inconsistent service delivery, impacting client satisfaction and potentially leading to client churn. For many agencies, word of mouth is paramount, and if one business leaves due to falling service levels, it can have a secondary effect on the rest of the business and make it harder to attract new business.

Can turnover ever be a good thing?

It's important to acknowledge that employee turnover isn't always negative. Sometimes, fresh perspectives and new skill sets can be beneficial. Sometimes, churning out a skilled person with the wrong attitude can help build a stronger team, or when a new hire brings innovative ideas to the table, it can lead to a positive change. However, for small, specialized teams within agencies, the costs of losing experienced employees often outweigh the potential benefits.

Calculating the true cost of employee turnover

While it's impossible to capture every penny, here's a simple formula for calculating employee turnover.

This employee turnover formula gives you a rough estimate of the financial impact of turnover on your agency.

For example, let's say your agency has 20 employees, and you lose a designer from the team. 

• Separation Costs are $10,000
• The cost of recruiting and onboarding a replacement is $15,000. 
• Due to project delays and lost productivity, you estimate a loss of $10,000 in revenue. 

Using the formula, the cost of turnover for this one employee would be: ($10,000 + $15,000) / 1 = $25,000.

If you also lost a client due to this turnover, though, and the designer was also working on some other projects simultaneously, the costs could quickly multiply. Added to this is the risk of losing additional employees, which can quickly cause your costs to snowball out of control.

Leveraging time tracking tools

Tools like Elorus can be invaluable in this process. By accurately tracking billable and non-billable hours, you can quantify the impact of turnover on your revenue. You can see how much time is spent on non-billable tasks like recruitment and training and how much potential revenue is lost due to reduced productivity and project delays. This data can be a powerful motivator for investing in strategies that reduce turnover.

Strategies to reduce employee turnover and mitigate costs

So, how can you stop the bleeding? Here are some proven strategies to reduce employee turnover:

• Build a strong company culture: This is the foundation of employee retention. Foster a positive work environment where employees feel valued, respected, and supported. Encourage open communication, recognize and reward employees for their contributions, and promote work-life balance. Some strategies include regular team-building activities including employee recognition programs and open forums like town halls where leaders can share information directly with all employees.
• Competitive compensation and benefits: Let's face it, money talks. Offer competitive salaries and benefits packages that meet industry standards. Consider implementing flexible work arrangements, such as remote work options or flexible hours, to attract and retain top talent. Go beyond the basics and consider things like unlimited vacation and funding for learning and education.
• Improve hiring and onboarding processes: Don't hire anyone to fill a seat. Develop a robust hiring process to find the right fit for your agency's culture and specific role. Once hired, create a comprehensive onboarding program that prepares new employees for success.
• Enhance employee engagement: Keep your employees engaged and motivated by offering regular feedback and coaching and empowering them to make decisions and contribute ideas. Consider implementing employee surveys and even mentorship programs to help ensure knowledge gets transferred throughout the organization.
• Create opportunities for growth and advancement: No one wants to feel stagnant in their career. Establish clear career paths within your agency and provide opportunities for employees to grow and advance. Clearly define the responsibilities at each level so that employees know what skills they need to gain to grow.
• Build a strong employer brand: Attract top talent by highlighting your company's unique culture, values, and employee benefits. Actively recruit on relevant platforms and showcase what makes your agency a great place to work. Think about including employee testimonials to let your employees be your brand ambassadors. Also, detail your involvement in the community to highlight your social responsibility. 

Conclusion

The cost of employee turnover is a significant issue for agencies, impacting both the financial health and operational efficiency of the business. By understanding the direct and indirect costs and implementing proactive strategies to reduce turnover, you can protect your agency's bottom line and foster a thriving work environment.

Take a hard look at your current retention strategies. Are they truly effective? Are you doing everything possible to keep your valuable employees engaged and satisfied? Remember, investing in your employees is an investment in your agency's future.

Elorus can help you track work time, improve productivity, and gain valuable insights into the impact of turnover on your agency. Contact us to help you take control of your agency's most valuable resource: your people.