The Power of Know

Cost of Employee Turnover

Employee costs take up a big part of your expenses. But losing staff is even more expensive! Use the Nonprofit Employee Turnover Calculator to learn more.

Value of Retention

For most nonprofits, personnel costs often make up the single largest expenses line in their budgets. Paying for expenses like salary, benefits, training, and equipment adds up! And for every nonprofit, your staff members are without a doubt your greatest asset.

Your employees may come and go for a variety of different reasons. While you may consider the costs associated with compensation, many organizations don’t consider the long-term costs associated with employee turnover. Understanding these direct and indirect costs is an incredibly important planning tool that nonprofit managers can use when creating scenario plans and determining hiring strategies.

That’s why at The Nonprofit Leadership Alliance, we’ve created a employee turnover calculator so that you can quickly determine the costs associated with departures. This will help show your organization the immense value of employee retention. Access this amazing calculator for free so that you can see this value for yourself!

Cost of employee turnover

Employee Turnover in the Nonprofit Sector

Your organization works hard every day to stretch your funds a little further. You constantly improve your fundraising practices to increase your ROI and try to cut back where possible while still operating effectively. There is a lot of conflicting information out there about whether or not the nonprofit industry has a turnover problem when compared to other sectors. We encourage nonprofits not to compare the turnover rates of the entire sector, but to consider carefully their personal organization’s turnover to determine if they have an issue with retaining employees.

Some of the myths and misconceptions about nonprofit organizations include:

Nonprofits lose employees because they can’t pay them much.

This isn’t necessarily true! While organizations have historically shied away from additional overhead costs, the view of nonprofit overhead is changing. You probably realize that providing a competitive salary is necessary to run your nonprofit sustainably.

Employee loyalty is dead in all sectors.

Loyalty isn’t dead. Employees want to stay at organizations where they feel valued and are offered opportunities for growth. In the nonprofit sector, your employees value your mission, so they want to be valued in return.

Improving employee engagement and satisfaction is expensive.

While you can take an expensive route to improve satisfaction rates, there are plenty of other activities and policies you can put into place easily and inexpensively.

You’re not doomed to a high turnover rate and low employee satisfaction just because you’re in the nonprofit sector. You should analyze your own performance when it comes to nonprofit turnover to proactively discover your own opportunities for growth and improvement. NonProfitPRO explains it well:, “If an organization has never run the numbers to see what its turnover rate is and what that attrition is costing the organization, it should start now. If it is discovered that its employee turnover rate is 26 percent compared to a national average of 19 percent, it is time to start investigating why.” The only way to never improve is if you doom yourself. Consider your own turnover rate, explore how much it’s costing your organization with a turnover calculator, then start considering why your organization is losing employees so that you can address the true issues at hand.

Why Employees Leave

There are two main types of turnover that you should concern yourself with. Both can become very expensive, and both are important to analyze. You have your involuntary and voluntary turnover.

number 1Involuntary Turnover — Some turnover is involuntary on the part of the staff member. You’ve had to let them go for one reason or another. This could be an issue of finances of course, but more often than not, involuntary turnover is caused by an issue with performance. A Nonprofit HR 2019 survey discussed various aspects of talent retention for nonprofits and the reasons for involuntary turnover. This survey noted the following statistics: Termination for performance-related reasons comes in highest at 58%, followed by “other” at 36% and layoffs at 29%. This shows that the majority of terminations in the nonprofit sector is performance related. Some of this occurs in every industry, but the answer for the issue is the same in each one: focus on hiring stronger performers. If you use the turnover calculator, you’ll see how expensive it is to replace those who leave. It’s generally much less expensive to ramp up your hiring process to make sure you’re getting the best individuals who you won’t need to let go based on poor performance.

Image of Drivers for Involuntary Turnover

number 2Voluntary Turnover — Voluntary turnover is what most organizations consider when they start to analyze their low employee retention rates. They may ask themselves, “why do people keep leaving?” However, for a more holistic view, the same survey by Nonprofit HR also pulled together some statistics for voluntary nonprofit turnover in the industry. As you can see, the highest reasons for nonprofit turnover are a lack of opportunity for growth (59.7%), compensation and benefits (47.6%), and dissatisfaction with the organization or culture (26.2%). Of course, all nonprofits function differently and everyone has different reasons for staying or leaving their employment. Take this into consideration by conducting exit interviews whenever someone leaves your organization. Create a standard set of questions that you can ask when someone leaves so that you can start gathering data about why your staff may find employment elsewhere. Over time, this data will help you realize your weaknesses and strengths, helping you bolster your staff retention. After boiling down the reasons people leave, you can start proactively adjusting your policies to encourage higher retention rates. For instance, you might start offering additional professional development and growth opportunities that lead to upward mobility at the organization.

Image of Drivers for Voluntary Turnover

Tips for Improving Nonprofit Employee Retention

Even if you fall below the national average for employee turnover (first off, congratulations!), you might still look for opportunities to continue decreasing your nonprofit turnover rate. There’s always room for growth and improvement.

The first tip that we can provide for improving employee retention is to start with your hiring process. Hiring top talent who are well-prepared and committed to nonprofit careers is always the best, most cost-effective human resources strategy.

When you consider strategies to retain the top talent that you’ve hired, consider the indirect compensation opportunities that you can offer for a more holistic, total rewards approach to compensation. Some of the indirect compensation opportunities you could offer to improve retention include:

Create open communication policies.

Employees don’t engage with secretive organizations. By developing a culture of positive and transparent communication among staff members, they’ll engage with and feel closer to your nonprofit.

Offer continuous opportunities for improvement.

From offering nonprofit courses to encouraging open and honest communication regarding upward mobility opportunities, your organization should be constantly focused on how you can provide the most value to employees.

Create an inclusive organizational culture.

If you alienate certain employees at your organization, they’re likely to become disengaged and even resentful. Put inclusive policies into place that encourage and celebrate diversity among your staff members.

Calculate the Cost of Employee Turnover for Your Nonprofit

With our cost of employee turnover calculator, your organization can attach a financial value to your retention strategies. This calculator takes into consideration the salary and benefits paid to the employees, the costs associated with filling the vacancy (recruiting, marketing costs, etc.), and the expenses associated with employee onboarding and orientation. When you have this number in mind, you can use the metric to go to leadership teams and advocate for potential compensation improvements and new expenses in order to better retain employees. In addition to the hard and soft costs outlined in this process, you also have to consider the “opportunity costs”. In other words, what did your organization not accomplish because of the time involved with filling a vacancy? For example, if one of your fundraisers needed to take a break from their usual activities to assist with the recruiting process, your opportunity cost includes the activities that would have been completed if that fundraiser had not been interrupted from their usual activities. Although opportunity costs are not included in the calculator, they should most certainly be considered when reflecting on your hiring practices.

This calculator is the best place to start when it comes to estimating the cost of employee turnover for your nonprofit. And the best part? It’s free!

The fine print: The Cost-of-Turnover Calculator© is designed to calculate the costs associated with a departing employee, including the costs involved with filling the vacancy. It is interactive to allow each user to input data specific to the organization and individual/position being evaluated. The calculator requires you to have access to certain personnel information specific to the position. The results are based on a unique, proprietary set of formulas.