An employee leaving a company is like throwing a stone in a still pond: ripples of disruption spread through the company, creating unbalance. In a business, this unbalance can be costly.

According to a study by the Hay Group, a management consultancy in the U.K., the replacement costs of professionals is 18 months salary. Bill Carpitella, CEO of Sharrow Group, a consulting and executive search professional for U.S. homebuilders, believes that turnover can cost a builder two times the employee’s base annual salary, or more. The intangible costs, however, such as the loss of good will, can be even more costly. As a result, it’s essential to recognize the value of employee satisfaction and implement innovative training initiatives aimed at recognition, growth, and quality relationships.

Out with the old, in with the new
New employees come with both tangible and intangible costs. Among the tangible are recruiting costs, which comprise both advertising expenses as well as time spent writing job descriptions, reviewing resumes, and interviewing; relocation costs, including temporary housing and orientation to a new city; and payroll, tax, and benefit set-up.

Intangible costs include slower productivity while new employees learn the ropes. If a construction site supervisor who had been managing between 15 and 30 homes leaves, it may take the new employee several weeks, if not months, to get a handle on things. Beyond simply overseeing construction, it takes time for the new employee to know what to say (and not say) to a customer. Saying the wrong thing can result in increased construction and service costs, maybe even increased litigation costs.

Employee loss can mean business loss
The costs associated with a new employee are often considered. However, these can be inconsequential when compared with those attributed to the employee that’s leaving. Tangible costs include the administrative work necessary to remove the employee from payroll, benefits, and taxes. Other costs may involve severance pay, or pay owed for vacation or comp time.

It’s the intangible costs, however, that can create the largest ripples of disruption. The day that unhappy employees give their notice may be the same day they really check out of the job. Sure, they may report to work for a few more weeks, but their minds are already immersed in their new freedom. A wandering mind is sure to lead to a few dropped balls. The quality of construction may degrade as a result of missed inspections, poor supervision, unclean jobsites, or apathy. Poor scheduling, the jobsite not being ready, or materials not being there may adversely affect trades. Relations with customers and vendors may also be compromised due to lack of attention and last-minute delays.

Poor quality, unclean jobsites, missed meetings, or closing dates…all these can quickly make a customer very unhappy. Think of the customer whose house isn’t completed on time, resulting in a missed closing date and, consequently, needing to move twice in order to sell their existing home. A referral from this customer? Not likely.

Another damaging aspect of turnover comes from the employee’s peer group. Here’s how it works: John tells Todd why Randy’s leaving (“Can you believe the company did that to him?”), and Todd tells Sue and Jose and Kate, all of whom tell their three best buds. The result is that negativity spreads through the company, causing distraction and unwanted dialogue.

Depending on the job and the builder, some companies may choose to cut an employee loose and pay the two weeks salary to avoid the associated risks of keeping an unsatisfied employee around.

Can you really afford turnover?
The costs of turnover add up quickly and can exceed two times the costs of the employee’s base salary. Damage to a builder’s name and customer dissatisfaction resulting from poor quality and delays can be even more costly, and can never be recouped. Keeping good employees is critical for minimizing such loss.

Don’t make waves
Ripples of change will inevitably affect a business. But minimizing turnover by keeping employees happy will save a builder a lot of grief, as well as a lot of money. For more information about keeping employees happy, see our related article, “Keep ‘Em Happy.”