Blog

The Economics of Employee Turnover: What Your Spreadsheet Isn't Telling You

The day I realised most businesses treat employee turnover like a weather report changed everything. You know the drill - another resignation hits your inbox, everyone shrugs and says "these things happen," and HR dutifully updates their monthly statistics like they're tracking rainfall in Darwin.

Here's what nobody wants to admit: your employee turnover isn't just costing you money. It's bleeding your company dry in ways your accountant probably hasn't even calculated yet.

The Real Numbers Game

Let's start with the basics, because apparently we still need to. When Sarah from Marketing hands in her notice, the immediate reaction is usually relief about not paying her salary anymore. Wrong move, mate.

The actual cost? Try somewhere between 50-150% of that employee's annual salary. For a $70,000 role, you're looking at $35,000 to $105,000 just to replace them. And that's before we get into the really expensive stuff.

I learned this the hard way back in 2019 when our Brisbane office hemorrhaged talent faster than a punctured water tank. Five people quit in two months. The exit interviews were all diplomatic nonsense about "new opportunities" and "career growth." The real story? Management had no clue what they were doing.

The Hidden Costs Everyone Ignores:

Recruitment and advertising - Because posting on Seek isn't free, and good recruiters charge what they're worth.

Training time - Your new hire needs three to six months to reach full productivity. That's three to six months of paying full salary for partial output.

Lost productivity from remaining team - When Dave quits, everyone else has to pick up his workload while you're recruiting.

Institutional knowledge walking out the door - Sarah knew which clients were about to churn and which suppliers were reliable. Now she's gone.

Management time - Hours spent in interviews, onboarding, and hand-holding that could've been spent on actual business growth.

What The Spreadsheets Miss

Here's where it gets interesting. Most businesses track the obvious costs but completely miss the psychological impact on remaining employees.

When good people leave, it creates a ripple effect. Suddenly everyone's questioning whether they should be updating their CV too. Morale drops. Quality suffers. Customer service gets patchy because half your team is distracted wondering if they're next.

I've seen companies lose entire departments this way. One person quits, then another, then it becomes an avalanche. Before you know it, you're left with the people who couldn't get jobs elsewhere. Not exactly your A-team.

The Melbourne office of a consulting firm I worked with (won't name names, but they're well-known) lost 40% of their staff in six months. The clients noticed. Revenue dropped 25% that year, and it took them two full years to recover their reputation.

The Prevention Game

Now here's where most business owners get it completely wrong. They think throwing money at the problem solves everything.

"Let's give everyone a pay rise!" "How about pizza Fridays?" "Free gym memberships will fix this!"

Newsflash: most people don't quit for money. They quit because of poor management, lack of development opportunities, or feeling undervalued. Pizza doesn't fix toxic leadership.

The companies getting this right - and I'm talking about the likes of Atlassian and Canva here - invest heavily in management training from day one. They don't wait until there's a problem.

Good managers retain good people. It's that simple.

The Development Factor

Here's something that'll shock you: 73% of employees who receive regular skills development stay with their company for at least three years. Compare that to 23% for companies that don't invest in their people.

Yet I still meet business owners who think training is an expense rather than an investment. "What if we train them and they leave?" they ask.

What if you don't train them and they stay? That's the real question.

Smart companies understand that professional development isn't just about skills - it's about showing people they have a future with you. It's about making them feel valued.

The Exit Interview Lie

Let me tell you about exit interviews. They're largely useless.

By the time someone's in an exit interview, they've already mentally checked out. They're not going to tell you the real reason they're leaving because they want a good reference. So you get sanitised feedback that helps nobody.

The real insights come from stay interviews. Regular conversations with your best people about what's working and what isn't. Before they start updating their LinkedIn profiles.

Australian Reality Check

The Australian job market is tighter than a fish's backside right now. Unemployment's sitting around 3.5%, which means good people have options. Lots of options.

In Perth's mining sector, companies are literally headhunting people from competitors' car parks. In Sydney's tech scene, developers are getting multiple offers before they've even finished their first interview.

If you think your people won't leave because they're "loyal," you're deluding yourself. Loyalty goes both ways, and most Australian workers have figured out that company loyalty died somewhere around the time of the GFC.

The Technology Trap

Here's a trap I see constantly: companies implementing new systems without considering the human cost.

"We're going digital!" they announce proudly, then wonder why half their experienced staff suddenly develop mysterious illnesses every Monday.

Change management isn't optional anymore. It's essential. And it starts with communication, not proclamation.

What Actually Works

After fifteen years of watching companies get this wrong, here's what actually works:

Hire slowly, fire quickly. Better to leave a position empty for three months than fill it with the wrong person for two years.

Invest in your managers. The saying "people don't quit jobs, they quit managers" isn't just a cliché - it's backed by solid research.

Create clear career paths. People need to see where they're going, not just where they are.

Pay attention to culture. Culture isn't ping pong tables and craft beer. It's how you treat people when things go wrong.

Measure what matters. Track engagement scores, not just turnover rates.

The companies that understand this - the Woolworths, the Commonwealth Banks, the BHPs - they don't just track turnover. They actively work to prevent it.

The Bottom Line

Employee turnover isn't inevitable. It's not just the cost of doing business. It's a symptom of deeper problems that can be fixed.

But only if you're willing to look beyond the spreadsheet and acknowledge that behind every resignation is a person who once believed in your company enough to join it.

The question isn't whether you can afford to invest in retention. The question is whether you can afford not to.

Because in today's market, losing good people isn't just expensive. It's potentially fatal.

Further Reading: Career Development Insights | Training ROI Studies | Workplace Culture Research