What is Churn & Sector Breakdown.
Churn, as opposed to disengagement, is the measure of employees who voluntarily resign. Looking at the statistics, the median average UK salary is £28,000, for full time workers it is £33,000. However 65% of workers in 2022 still earn less than £33,000 (ONS).
Rates of Churn differ according to sector, region and job level. While the UK average in 2022 was 15%, sector churn ranged from fast food (45%) to engineering (9%), and within job types, sales and marketing (31%) and admin & general (19%) are noted
The Real Cost of Employee Churn
The cost of employee churn depends on the type of job and is difficult to measure. Estimates vary from 2 to 3 times annual salary, to 40% of annual salary. For example a supermarket will allow for up to 4 months to train a night shift supermarket shelf stacker, to stack the shelves in the manner and at the speed required, and that by the end of 6 months they will have retained less than 50% of the intake.
There are two costs incurred when replacing an employee who has resigned (Churn), the direct costs (advertising, agency fees etc) and the indirect cost (on-boarding and up to a level of efficiency and knowledge of the person they replaced) which of the two is by far the greater, and the one this article is focused upon.
Why How You Measure Cost Is Important
Like any sunk cost it is too easy for the cost of churn to be lost in the white noise of business stats, and look elsewhere for savings but consider the following. In 2022Q3 internal reports from Amazon on the cost of their churn were leaked.
According to Amazon, employee churn cost them $8b in 2021, that is 23% of their net profit.
You can believe that Amazon is an extreme case, and that your company does not have anything like their problems of staff retention, but consider the following. Amazon have 1,480,000 employees. So another way of looking at the Amazon stat is that Amazon are paying a ‘Tax’ of $5,400 for every employee or $5.4m/1000 employees (£4.5m).
Churn is an Avoidable Tax on Employment
When you start to think of Churn as a tax on employment the cost of Churn starts to become real. Again it is easy to hide one’s head in the sand and say it does not apply to your Company, but consider the average case. For an employer with UK average Churn (15%) paying the UK average wage (£33,000), the cost/1,000 employees is £33,000 x 150 x 0.4 = £1,980,000.
Once you begin to think of Churn in terms of a tax levied at the rate of £2m/1,000 employees as a performance metric, you raise the incentive to mitigate your cost.
To find out more about avoiding the tax on churn use this link