When a good employee leaves, the visible costs are easy to count: a job posting, some interviews, maybe a recruiter. The real cost is much larger, and most of it never shows up as a line item.
Gallup estimates that replacing an employee costs one-half to two times their annual salary (opens in a new tab). For a small business or nonprofit, where one person often holds knowledge no one else has, the true number can be at the high end of that range.
What turnover really costs
Direct costs are the ones you see:
- Recruiting: job ads, recruiter fees, background checks
- Time spent screening and interviewing, usually by leaders whose time is already stretched
- Onboarding and training
- Overtime or temporary help while the role is empty
Hidden costs are usually bigger:
- Lost knowledge. The person who leaves takes with them the workarounds, relationships and “how we actually do it” that were never written down.
- Months of reduced output. A new hire needs time to reach full speed. Until then, someone else picks up the slack.
- Heavier load on the people who stay. In lean teams, the remaining staff absorb the work. That extra strain is often what causes the next resignation.
- Missed opportunities. Grants not written, follow-ups not made, projects delayed.
- Relationships. Clients, donors and partners notice when their contact changes again.
How to calculate your turnover rate
Your turnover rate is the share of your team that left over a period, usually a year.
- Count how many people left during the year (voluntary and involuntary).
- Work out your average headcount: add the number of employees at the start and end of the year, and divide by two.
- Divide the number who left by the average headcount, then multiply by 100.
Example: 4 people left. You started the year with 18 employees and ended with 22, so your average was 20. Your turnover rate is 4 ÷ 20 × 100 = 20%.
It helps to calculate voluntary turnover separately. People who choose to leave tell you the most about what’s happening inside the organization.
How to estimate what turnover costs you
You don’t need a perfect number. A reasonable estimate is enough to make the case for change.
- Take the average annual salary of the roles people left.
- Multiply by a replacement cost factor. Use 0.5 for roles that are easy to fill and quick to learn, and 1 to 2 for specialized roles or roles that hold key relationships or knowledge.
- Multiply by the number of people who left.
Example: Three program coordinators left this year, each earning about $50,000. Using a conservative factor of 0.5, turnover cost about $75,000. At a factor of 1, it cost $150,000. For many small organizations, that’s more than the budget for the systems or staffing that might have prevented it.
Why people leave lean organizations
Pay matters, but it’s rarely the whole story. Gallup found that 52% of employees who left voluntarily (opens in a new tab) said their manager or organization could have done something to keep them.
In our work with small businesses and nonprofits, a few causes come up again and again:
- Heroic effort as the norm. The work only gets done because people go above and beyond, every week. It looks like dedication. Over time, it’s exhausting.
- Broken or missing systems. People rebuild the same report every month, enter the same data in three places, or rely on a spreadsheet only one person understands.
- Unclear roles. No one is sure who owns what, so the most conscientious people end up owning everything.
- Problems leaders can’t see. The burden of broken systems falls hardest on the people furthest from the top, so leaders often don’t see it until someone resigns. (See What your organizational chart can’t tell you.)
What to do about it
- Calculate your number. Put a dollar figure on last year’s turnover. It changes the conversation from “we can’t afford to fix this” to “we can’t afford not to.”
- Talk to the people who stay. Ask what makes their work harder than it needs to be. Listen to the whole answer.
- Look at the system, not just the person. If the same role keeps turning over, the role, the workload or the tools are probably the problem.
- Fix one thing visibly. Removing even one recurring frustration shows staff that speaking up leads to change.
How we help
The Change Up Group helps small businesses, nonprofits and purpose-driven organizations find what’s really driving turnover and other hidden costs. Our organizational assessments look at how work actually gets done, at every level, and give you a prioritized path to fix it.
Start a conversation about what turnover is costing you.