What it costs to lose one good employee

For the small business owner or entrepreneur who covers the shift themselves when someone leaves, because there is no manager to hand it to.

Owners rarely think of turnover as a line item, because it never arrives as an invoice. It arrives as a shift you cover yourself, three weeks spent on interviews, a new person who is slow for a month, and a run of reviews that mention the wait.

The number

The most careful synthesis I have found is the Center for American Progress review of the business costs of replacing employees, which pulled together case studies from the most relevant research on the question. Across 27 case studies covering everything except executive and physician roles, the typical cost of replacing a worker was 21% of that worker's annual salary. For jobs paying $75,000 or less — about nine in ten American workers — the typical figure was 20%. For jobs paying $30,000 or less, it was 16%.

So for someone earning $38,000, the middle estimate is something like $6,000 to $8,000 to replace them. Not catastrophic. Not nothing either, and it happens more than once a year in most frontline businesses.

Two caveats worth stating. That is a median across studies, not a prediction for your business, and the underlying range is enormous — from under 6% to over 200% of salary depending on the role. And the review is now a decade old, though nothing since has moved the middle of the range much.

Why I bring it up

Not to claim that a workshop reduces turnover. I have no evidence for that and will not pretend to. I bring it up because it is the right yardstick for the price of training.

A ninety-minute workshop for a whole team costs less than a third of what the research suggests one departure costs you. If it does nothing but make one competent employee feel more capable in the part of the job that grinds them down — the unhappy customer, the awkward ask — the arithmetic is not close.

The related cost nobody counts

There is a second number in the same neighborhood. A 2020 study in the Journal of Marketing examined 35,597 complaining customers across 41 industries over ten years of American Customer Satisfaction Index data. Complaining customers reported a mean repurchase intention of 6.19 out of 10, against 8.05 for the full sample. The average complaint-handling score across all those industries was 6.31 out of 10.

In other words: complaints are common, they cost you future business, and the average business handles them at roughly a C. That is a skill gap, and it is a teachable one.

Common questions

How much does it cost a small business to replace an employee?

The typical cost across 27 case studies was about 21% of that worker's annual salary, and closer to 20% for jobs paying $75,000 or less. For someone earning $38,000, that puts the middle estimate around $6,000 to $8,000 per departure, not counting the owner's own time covering the gap.

Does training reduce employee turnover?

There is no direct evidence for that claim, and it should not be sold as one. The stronger argument is a cost comparison: a ninety-minute workshop for a whole team costs less than a third of what one departure typically costs, so it is a reasonable bet even without a turnover guarantee.

What does a typical business's complaint handling look like today?

Across 41 industries and ten years of American Customer Satisfaction Index data, the average complaint-handling score was 6.31 out of 10, roughly a C. That is a skill gap most businesses share, and it is a teachable one.

Sources

• Boushey, H., & Glynn, S. J., Center for American Progress. There are significant business costs to replacing employees. A synthesis of case studies from published research.
• Morgeson, F. V., Hult, G. T. M., Mithas, S., Keiningham, T., & Fornell, C. (2020). Turning complaining customers into loyal customers. Journal of Marketing. Peer-reviewed.