Back to Basics

Understanding the Cost of Employee Attrition

May 16th, 2023 – SkillCycle

A woman at work wearing a red sweater puts her head on her computer in frustration

In this article, we’ll cover:

  • How much attrition could be costing your company
  • Direct and indirect costs of employee attrition
  • 8 retention strategies to reduce your attrition rate
  • Why keeping employees is a critical component of business success


Losing employees is tough on your company’s bottom line. Most CEOs would agree, but how many could put an exact number on what employee turnover costs them? Probably not many.

The numbers are startling. Attrition isn’t a new problem, but once Gallup called voluntary turnover the $1 trillion dollar fixable problem in the U.S. back in 2019, it started getting a lot more airtime. If you can slow your attrition rate, you have a good chance of cutting costs—and creating a better place for your employees to work.

The problem isn’t going away, either. In 2021, 40% of employees said they were somewhat likely to leave their jobs in the next three to six months, according to McKinsey. Almost a year later, the numbers hadn’t changed. If you haven’t done the math on the costs of employee attrition in your company, now’s the time.

How much does attrition truly cost your company?

The true financial impact of attrition isn’t clear in every organization, especially if they don’t have systems in place to track the full range of costs that add up. 

Some estimates say replacing people who leave your company costs one-half to two times their annual salary (in other words, six months to two years of their salary), according to Gallup. If the average salary in your organization is $50,000, you could be spending between $25,000 and $100,000 for every employee who quits.

Multiply that by just ten employees quitting in a year, and the annual costs to the company could be anywhere from $250,000 to $1 million. Add these costs to what it takes to compete in a tight labor market, and most companies can’t financially survive the loss of good people

These estimates are reason enough to adopt a proactive approach to managing attrition. But there’s more to these calculations than just hiring and administration expenses.

Direct and indirect costs of employee attrition

Some costs tend to be more easily measured and attributed to attrition, but that’s not where the story ends. Costs can ripple out from employee turnover, affecting multiple departments and levels of your company. 

Let’s look at some of the costs associated with employee turnover:


Direct attrition costs

These are clearly related to the HR functions of addressing employee turnover. These include tangible costs such as recruitment, hiring, onboarding, and training new employees. Direct attrition costs also need to account for the administrative expenses of resignations and exit interviews.


Indirect attrition costs

Other related costs can include lost business, loss of institutional knowledge and expertise, and lowered productivity while a new employee gets up to speed. Losing team members can mean losing investments in client relationships and potential customer dissatisfaction. New hires may need to be managed more closely, requiring more time investment from those they report to. 

Let’s not forget what can happen on a team when one or more people decide to quit. It can be a blow to remaining employees to lose connection and relationships, causing lower engagement and morale among remaining team members who are sure to ask what motivated people to leave the company.

8 retention strategies to reduce your attrition rate

Ready for some good news? However impactful the costs of attrition are, so too are the savings when a company can slow its rate. 

If attrition costs your organization $100,000 annually, and you can reduce that rate by 10%, you’ll save $10,000 each year. Multiple that by five years, and you’ll see the significant impact of addressing your attrition rate head on.

Employees want to stay in workplaces where they feel valued and can see opportunities to grow. Here are eight strategies to help reduce attrition and keep people in your company.

1. Hire better in the beginning

Carefully expanding your team by identifying and filling skills gaps will ensure you hire proactively, increasing the chance employees will stay.

2. Listen to your employees

Stay attuned to what your employees want for benefits and work structures to ensure you meet their needs and aren’t offering superficial perks they don’t value.

3. Set clear goals and expectations

Work with your employees to develop goals that help drive positive outcomes for them and the company, then empower them to meet them.

4. Consistently engage your employees

Create opportunities to meet with employees to discuss their work, current challenges, and what they need to be successful in their roles.

5. Develop your people

Commit to offering learning opportunities throughout your employees’ careers based on their interests and goals, so your people can always see how they can grow and evolve.

6. Be proactive about skill building

Get better at spotting who on your team can fill skills gaps, so you can offer the opportunity for them to gain vital skills and strengthen your organization for the future.

7. Make the work meaningful

Connect people’s work to the company’s purpose and mission. Your employees should understand why their work matters and how it contributes.

8. Build a strong organizational culture

Nurture a positive environment that offers employees a safe, inclusive space to learn, challenge themselves, and build their talents over time. 

Why keeping employees is a critical component of business success

Losing talented employees can be an expensive problem, but this isn’t just a financial concern. It’s also imperative for organizations to recognize that better employee retention creates a stronger company overall. 

The benefits of retaining your employees can be seen in every business area, from increased productivity and profitability to improved morale. You’ll also boost your brand reputation and be able to attract new talent when needed.

With a strategic approach to keeping and developing your people, you’ll create a highly skilled and cohesive team with robust knowledge, deep expertise, and a solid commitment to the company’s mission.

When HR and people ops are adequately equipped with resources and systems that support proactive retention strategies, they can go beyond addressing performance issues and hiring. Instead, they can identify challenges and deliver strategies to help mitigate the cost of employee attrition and build a stronger company from the bottom up.


Ready for a solution that helps you achieve your definition of success? Book a demo to learn how SkillCycle’s people success operating system can meet your needs.


Subscribe to our newsletter