Employee attrition affects every contact center. Most executives realize churn is expensive, but few know what it costs a specific center, much less an enterprise. It is a blind spot that blurs decision-making and causes missteps.
The Great Resignation, now front and center in staffing, has been building for years. And it isn’t driven solely by retiring Baby Boomers.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” —Anonymous
More than half of U.S. employees are willing to change employers under the right conditions. Worsening matters is that 44% of workers are looking or planning to look for a new job this year.
The cost of attrition is staggering. Gallup estimates U.S. companies lose one trillion dollars yearly due to voluntary turnover.
Applying Gallup’s assumptions to the global workforce suggests voluntary attrition costs four to five trillion dollars annually. Only the U.S. and China’s annual gross domestic products (GDP) surpass five trillion dollars.
Knowing attrition’s true cost is essential for effective recruiting and capacity planning. It is a mistake to assume the cost of turnover equals the combined cost of recruiting, onboarding, training, nesting, and wages.
These direct costs are easy to isolate, but they do not tell the whole story. Peter F. Drucker eloquently explained the issue:
“Traditional cost accounting measures what it costs to do a task, for example, to cut a screw thread. Activity-based costing also records the cost of not doing, such as the cost of machine downtime, the cost of waiting for a needed part or tool, the cost of inventory waiting to be shipped, and the cost of reworking or scrapping a defective part. The costs of not doing, which traditional cost accounting cannot and does not record, often equal and sometimes even exceed the costs of doing.”
Separating truth from fiction is the first step toward improving a contact center’s financial performance. This article addresses six widely held myths and, in doing so, describes how to calculate the cost of hiring, training, nesting, and attrition.
Myth 1: It costs $4,683 to hire a contact center agent
Contact centers depend on frontline workers to create exceptional customer experiences (CXs). However, with average annual attrition hovering around 42%, the industry has struggled for decades to hire people who stay and perform well.
Data suggest that attrition-related problems are accelerating despite advances in recruiting and talent assessment technologies.
FIGURE 1: 2011 – 2021 ANNUAL ATTRITION IN THE U.S.
High attrition requires centers to hire more people to maintain headcount; it’s an expensive cycle. The Society for Human Resource Management (SHRM) estimates that, across all jobs, companies spend $4,683 to hire one person. However, the contact center industry’s median cost per hire is substantially lower at $1,750, according to ContactBabel.
An alternative to generic benchmarks is to calculate cost-per-hire directly. Figure 2 outlines internal and external expenses that affect a company’s cost-per-hire.
FIGURE 2: COST-PER-HIRE CATEGORIES
The myth that the average cost-per-hire for a contact center agent is $4,683 is plausible but unlikely. We draw this conclusion for three reasons.
First, the $4,683 estimate is an average across jobs, including executive roles.
Second, a few very high cost-per-hire estimates are inflating SHRM’s estimate.
Third, the expense categories highlight the role of market-specific factors, such as office space, in cost-per-hire calculations.
Box 1 shows that it costs $2,250 ($94,492 / 42 hires) to hire one person in our featured 100-seat center. Our estimate is less than half of SHRM’s benchmark and 29% higher than ContactBabel’s median.
Myth 2: The cost to onboard and train is wage x hours
Onboarding introduces new hires to the company, and training prepares them to perform the job.
Contact centers make significant investments in new hire training. For example, it costs our 100-seat center $35,244 in new hires’ wages to train seven people for six weeks.
Relying on wages x hours simplifies calculations but underestimates training costs. Figure 3 identifies expenses centers should use when calculating the cost of training.
FIGURE 3: TRAINING EXPENSE CATEGORIES
Intelliante and Cinareo used direct and indirect expenses from Box 2 to estimate training costs.
The contact center spends $190.25 per classroom hour to train seven people; $45,660 for a six-week class ($6,523 per person).
Our analysis reveals that hidden expenses add 30% to the cost of training over wage-only estimates [($45,660 – $35,244) / $35,244)].
Contact centers must incorporate direct and indirect expenses to measure the true cost of training. By including direct and indirect expenditures, centers will fully understand their training costs.
Myth 3: The cost of nesting is wage x hours
Nesting refers to on-the-job training that follows classroom instruction. Nesting usually lasts one to four weeks.
Agents interact with customers during nesting but are not “productive” because centers often send employees back into the classroom for training and coaching.
The contact center spends $14,762 ($184.52 x 80 hours) for seven people to complete two weeks of nesting, corresponding to $2,109 per trainee (see Box 3).
As shown in Box 3, by the time a new hire finishes nesting, the center has invested $10,881 in them [hiring ($2,250) + training ($6,523) + nesting ($2,109)].
The new employee’s transition to production is a center’s first chance to recoup its investment.
Myth 4: It is impossible to estimate inefficient and lost productivity costs
Contact centers rarely use new-hire learning curve data to (a) estimate lost productivity and (b) create a capacity plan.
Learning curve data summarize the time it takes for a new agent to perform proficiently. Mark Alpern estimates that, in the first year of employment, new hires are 67% as efficient as agents with at least one year of tenure.
Learning curve results for 1,800 agents from eight centers appear in Figure 4. On average, agents are 53% as efficient in the first month of production as in the twelfth month.
FIGURE 4: NEW HIRE LEARNING CURVE BASED ON CALLS PER HOUR
We can calculate a new hire’s cost of inefficiency in three steps.
First, set a minimum seat value equal to the average of the center’s proficient agents’ fully loaded wages plus office, administrative, and technology expenses. For example, Box 4 data from the 100-seat center yields a seat value of $53,082.
Second, compute new hire efficiency (Proficient Agent AHT / New Hire AHT) starting production month one and ending when the ratio reaches 1.00, usually eight to twelve months. In Figure 4, new hire month one efficiency is 53% (2.8 / 5.3).
Third, multiply the minimum seat value by the average monthly efficiency ratio. The product summarizes a new hire’s efficiency relative to a proficient agent in dollars.
The center loses $9,849 (18.6%) to inefficient performance for every employee who stays for twelve months.
Lost productivity due to an open seat also affects the cost of attrition. It takes an average of 34 days to fill a customer service job opening and, in our example, another 40 days to finish training and nesting.
It costs the center $25.52 in lost productivity every hour a seat is open, or $204 per day.
Box 4 shows how to measure the minimum cost of inefficient and lost productivity.
Myth 5: Attrition costs $5,000-$10,000 a person
Attrition is one of the contact center industry’s biggest and most controllable problems. The constant outflow of talent erodes margins, demoralizes workers, and undermines CXs.
Most cost-of-attrition projections range between $5,000 and $10,000. Other estimates use a percentage (16% to 33%) or multiple (100% to 300%) of an employee’s wages. These guidelines suggest that the cost of attrition falls somewhere between $5,000 and $100,776, at $16.15 per hour [($16.15 x 2080) x 300%)].
FIGURE 5: COST OF ATTRITION PER AGENT BY EMPLOYMENT MONTH
One way to calculate the cost of attrition is to sum expenses: $2,250 (recruiting) + $6,523 (training) + $2,109 (nesting) + $821 (inefficiency) + $2,042 (10 days lost productivity) = $13,745.
The problem is that attrition costs range from $10,882 in month one to $22,691 in month twelve.
Attrition is one of the contact center industry’s biggest and most controllable problems.
Allocating expenses based on when an agent churns is a more accurate way to calculate the cost of attrition. Figure 6 illustrates how to compute the cost of churn by employment month.
The 100-seat center loses $660,167 annually to attrition (M1 = 3 x $10,882 + M2 = 14 x $10,882 + M3 through M12), an average of $15,718 per person (see Figure 6).
FIGURE 6: WORKER CHURN AND COST OF ATTRITION BY EMPLOYMENT MONTH
Myth 6: There’s little value in planning for attrition
Contact centers that fail to plan for attrition will suffer significant financial and workplace consequences.
It costs the 100-seat center $25.52 in lost productivity every hour a seat goes unfilled. The worst-case scenario is a center that reacts after attrition occurs. If it takes 74 days to fill an opening with a trained agent, it costs the center $15,108 in lost productivity.
Understaffing increases pressure on workers to maintain service levels and negatively affects CXs. Every open seat increases occupancy rates. Research shows that occupancy rates above 90% harm productivity and lead to burnout.
Creating a talent recovery plan reduces seat vacancies, inefficiencies, and lost productivity. It forecasts attrition and required staff while providing a timeline to recruit and train new employees to ensure the center remains at or near capacity.
The example (Figure 7) demonstrates how to construct a talent recovery plan.
FIGURE 7: TALENT RECOVERY PLAN EXAMPLE
The talent recovery plan helps centers hire ahead of attrition. Suppose center leaders forecast seven agents will depart in March and April. The center can bring trainees into the January class (24 February graduation) to prepare them to fill the open seats, eliminating lost productivity.
A talent recovery plan typically delivers solid returns. Figure 8 shows an average return of 141%, but the values range from -35% to 385%.
The negative return means using the talent recovery plan at the 100-seat center will increase expenses when it takes ten days to fill a seat. The center’s recruiting process is working efficiently; the talent recovery plan will not add ROI directly. However, other outcomes worth noting are lower occupancy rates and higher staff satisfaction, which create additional value.
FIGURE 8: TALENT RECOVERY PLAN RETURN ON INVESTMENT
The cost of attrition exceeds the most widely used benchmarks.
Contact centers seem to operate in a state of blissful ignorance. Industry executives recognize the deleterious nature of attrition but consistently underestimate its financial repercussions for two reasons.
First, the lack of a standard approach for estimating attrition’s cost forces centers to rely on benchmarks or back-of-the-napkin calculations.
We closed this gap by describing a flexible, comprehensive approach to calculating the direct and indirect costs of hiring, training, nesting, inefficient and lost productivity, and attrition. Our method allows centers to compute costs more objectively and accurately.
Industry executives recognize the deleterious nature of attrition but consistently underestimate its financial repercussions…
Second, executives underestimate the cost of attrition because they assume a single number summarizes its expense.
We show that the cost of attrition changes (Month 1: $10,882 – Month 12: $22,691) based on when an employee leaves the company. By allocating expenses based on when an employee leaves, a center can estimate its actual cost of attrition more precisely than relying on an inaccurate benchmark.
This article equips centers with the tools to calculate the cost of attrition and create talent replacement plans to reduce its financial and service-level impact.
Contact center executives must take seriously the need to calculate their actual cost of attrition and take steps to improve their centers’ financial trajectory.
We have created a free online calculator that computes the values discussed in this article. You can access the calculator at https://www.intelliante.com/calculator.