The true cost of attrition in labor force management has been discussed and debated for years. Nailing down this seemingly mystical number is challenging because of the many changing factors at play. For one, the use of multiple labor classifications, either traditional or contingent, complicates creating a standardized model to calculate the cost of attrition. And within positions, skills vary greatly, as do their value. Then there’s productivity: how long it takes an incoming worker to get up to full speed varies greatly, not to mention when the departing workers were exceeding productivity expectations based on contributions to their roles. Complex, indeed.
But there are ways to get a close approximation. And the program that can do so gains competitive advantage. Armed with data, program managers can advocate for changes to variables that affect those costs — perhaps in increased pay or training. And in times of intense labor shortages, every retained worker matters.
Case Study: Calculating Attrition Costs
Here’s an example of determining an estimate.
For the purposes of this exercise, we’ll use repeatable skills with matching pay — and typically matching bill rates. Thus, light industrial contingent labor enables us to put some math to this problem and reasonably calculate the cost of attrition.
Customer perspective. To better understand the labor cost and market for light industrial workers, we connected with buyer organizations to discuss their operational experiences. These conversations helped us understand how long it takes for a given individual to produce output that matches or exceeds productivity expectations — called “assimilation to full productivity.”
Here are real numbers from a buyer organization and how long it takes for their light industrial, temporary workers to get up to speed and deliver 100% productivity.
With further discussions with several light industrial buyer organizations, it becomes clear one could establish a workable cost model based on a few assumptions of consistent variables like attrition, how long it takes for the worker to be productive, cost to train replacement workers and general market intel. Sometimes a complex problem is best resolved by simplifying it. If we can quantify the costs of rehire and training (number of workers times weekly turnover percentage), this might create a justifiable business case to fund employee/worker engagement programs such as additional training for workers and engagement managers alike.
Assimilation to productivity is a key variable in calculating attrition costs. Here are some sample data:
- 5 days of ramp-up time
- Retraining cost is $400 per worker / position over a 5-day period
- Weekly turnover rate of 25%
- 100 workers with the same title and skills requirements
The findings of this example show a direct estimated loss of $500, 000 per year for 100 workers with a turnover rate of 25% per week.
“The cost of attrition within light industrial contingent programs is real and multiplies exponentially when you consider rehire and training costs,” says HCM Strategies CEO Jason Fox, who provided some assistance in this exercise.
While some attrition is unavoidable, it is not until you can see the associated costs that you will know whether efforts to reduce it are effective. Using data culled from your vendor management software, you can determine how much it costs in general for some of your job categories. Then, armed with that data, you may be able to advocate for changes that might help reduce it, such as increasing pay or perhaps additional strategic training investment. A word of caution, however: When analyzing turnover data, some companies have seen higher pay rates correlate to lower attrition rates, but increasing pay is not a guaranteed way to reduce attrition. In fact, this may be treating the wrong symptom. There are many variables to consider, such as CW worker and manager engagement, client market reputation, and macro market factors like unemployment rates and talent supply versus demand.
Within the staffing ecosystem, the soft costs of attrition are expensive. For staffing providers, their level of effort to recruit and place someone is real and hits their bottom line, directly and severely. For buyer organizations, attrition can tarnish their brands and cause morale and basic productivity issues. As the ecosystem continues to evolve and the art and science of managing contingent labor continues to improve, organizations that can creatively address attrition challenges will begin to realize a competitive advantage and accelerate their assimilation to targeted productivity.