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We all know that personnel turnover causes problems, and that turnover is expensive. What we have not known is how much it really costs. Many recent articles and research studies have focused on this problem, and the results can easily be applied to property management.
Nationally, turnover rates run from 2 percent to 35 percent per year. One manufacturing company reported an annual turnover rate of 120 percent per year. That turnover cost the company $1.5 million a year in lost productivity, increased training time, increased employee selection time, lost work efficiency, and other indirect costs.(1)
My own recent survey, although not scientific, revealed the average turnover rate among 31 residential management companies to be about 81 percent per year. This survey included 11 small companies (with properties in only one or two markets), and 20 larger companies (multi-market or national).
Among the smaller companies, the lowest reported rate was 9 percent, and the highest was 72 percent. In the larger companies, the lowest was 19 percent, and the highest was several hundred percent. The overall average of 81 percent did not include turnover among maids or porters because they are not staff positions in all companies. The calculation formula was the one used by the U.S. Department of labor.
Turnover costs are difficult to determine in our industry because there are two kinds of associated expenses. One, the visible cost of recruitment, such as advertising, training, and relocation, is measurable. The other, the hidden costs, are rarely measured. Hidden costs include inefficiency, lost opportunities from being understaffed, and poor performance from those workers who must do more to fill the gap.
While one report stated that it costs an average of $6,000 just to hire a new employee,(2) another report, by J. Douglas Phillips, argued that hidden expenses accounted for at least 80 percent of real turnover costs.(3)
The latter report referred to several studies of turnover costs. The first study (in 1980) calculated turnover costs to be equivalent to about 1.2 to 2.0 times the average salary of the position. This study was repeated in 1988 with the same methodology except for the inclusion of nonexempt turnover. The second study found turnover costs to be about 0.75 times the annual salary of...