The Economics of Retention - Calculating the True Cost of Employee Turnover
When an experienced employee resigns, businesses often focus first on the obvious question: how quickly can we replace them?
From a recruitment perspective, that's understandable. But the cost of replacing someone is only one part of what a resignation can create.
There's the time spent recruiting and interviewing. The period when the role is vacant. The additional workload picked up by colleagues. The knowledge and customer relationships that leave with the employee. Then there's the time it takes for their replacement to join, learn the role and get fully up to speed.
Some of those costs are easy to see. Others are much harder to put a figure on.
The Recruitment Cost Is Only the Beginning
The most visible costs of employee turnover are usually connected with finding the replacement.
Depending on how you recruit, these might include:
- Advertising or recruitment fees
- Time spent reviewing CVs and screening candidates
- Hiring manager time spent interviewing
- Assessments or other parts of the selection process
- Onboarding and training
Those are real costs, but focusing on them alone can underestimate the impact of losing somebody.
In MedTech, particularly in commercial, clinical and leadership roles, the bigger cost may be what happens between one person leaving and their replacement becoming fully effective.
What Happens While the Role Is Vacant?
A vacancy doesn't usually mean the work disappears.
If a Territory Manager leaves, somebody still needs to look after the customers. Existing opportunities still need progressing. Cases may still need supporting. Meetings still need attending and the territory still needs covering.
That workload may move to a manager or neighbouring team members while recruitment takes place.
For other roles, the impact might be delayed projects, less management capacity, reduced customer coverage or other employees being pulled away from their own responsibilities.
The longer the vacancy remains open, the greater that disruption can become.
Knowledge Walks Out of the Door Too
When somebody has been with a business for several years, they accumulate knowledge that doesn't necessarily appear in a CRM system or handover document.
They know the history of particular accounts. They understand how individual customers prefer to work. They know which opportunities have been tried before, where relationships are strongest and who needs to be involved in a decision.
They may also hold a great deal of internal knowledge about products, processes and the people around them.
Some of that can be handed over. Some of it can't.
This can be particularly significant in MedTech roles where strong customer and clinical relationships have been built over a long period.
A Replacement Isn't Productive on Day One
Even when recruitment goes smoothly, replacing somebody takes time.
First you need to find the right person. They may then have a notice period before they can join.
Once they start, there is still a learning curve.
A new employee may need to learn:
- The company's products and services
- The therapy area and clinical environment
- The territory or customer base
- Internal systems and processes
- Existing accounts and opportunities
- How different teams within the business work together
Someone can be an excellent hire and still need time before they are operating at the level of the person they replaced.
That period should be considered part of the real impact of turnover too.
There Can Be a Cost to the Rest of the Team
When somebody leaves, their colleagues often absorb at least some of the gap.
That might mean covering customers, taking on additional work, helping with recruitment or supporting the new employee once they arrive.
For a short period, that may be perfectly manageable.
If vacancies are frequent or difficult to fill, however, the additional pressure can become significant. Managers can also find themselves spending more time repeatedly recruiting and onboarding than developing the team they already have.
One resignation doesn't necessarily create a retention problem. Repeated vacancies in the same team or role are much more worth paying attention to.
Not Every Resignation Is Preventable
It's important not to treat every employee departure as evidence that something has gone wrong.
People leave businesses for all sorts of reasons.
They relocate. Their circumstances change. They retire. They want to move into a different type of role. Sometimes another company simply offers an opportunity that is exactly right for the next stage of their career.
Trying to eliminate employee turnover altogether isn't realistic.
The more useful question is whether there are patterns in the people you're losing.
Look for Patterns, Not Just Individual Departures
If the same role has been recruited three times in a relatively short period, it's worth asking why.
Likewise, if people regularly leave after reaching a particular stage in their career, or one team experiences noticeably more turnover than another, there may be something useful to investigate.
Look at what departing employees are telling you, but also talk to the people who are staying.
Are expectations clear? Do people see opportunities to develop? Is the package still competitive? Are there recurring frustrations around workload, management or progression?
You won't be able to act on everything, and not every employee will want the same things. The purpose is to understand whether there are avoidable reasons good people are leaving.
What Does Losing Someone Actually Cost Your Business?
There isn't a single formula that will give every MedTech business an accurate answer.
The impact of losing a relatively new employee will be different from losing a long-standing Sales Director, experienced Territory Manager or Clinical Specialist with established customer relationships.
Rather than trying to force every departure into a standard calculation, consider the different areas where a cost or impact may arise:
- Recruitment and advertising
- Hiring manager and HR time
- The period the role remains vacant
- Lost or reduced customer coverage
- Additional workload for colleagues
- Lost knowledge and relationships
- Onboarding and training
- The time required for the replacement to become fully effective
Not every item can be neatly converted into pounds and pence. That doesn't mean it has no value.
Retention Is About More Than Avoiding a Recruitment Fee
Recruitment is one of the most obvious costs when an employee leaves, but it is rarely the only one.
For an experienced MedTech employee, the greater impact may come from the months around the recruitment process: the vacancy, the disruption, the knowledge that leaves and the time needed for somebody new to build their own relationships and experience.
Some turnover is inevitable and sometimes bringing somebody new into a business is exactly what is needed.
But when good employees are leaving for reasons that could have been addressed, the cost of replacing them is worth considering alongside the cost of keeping them.
And if the same roles keep becoming vacant, the most useful question may not be how quickly you can recruit again. It may be why you keep needing to.