A resignation rarely arrives at a convenient time. A manager has to recruit, colleagues cover the work and a new starter needs time to settle in. Each cost may look manageable on its own. Together, they can change the case for spending on retention.
Consider a 50-person SME with an average salary of £30,000 and annual staff turnover of 20%. That means replacing 10 people a year. The figures below are an illustration, rather than a price tag for every business, but they show why it pays to model the full cost of a departure.
The bill starts before the replacement does
Suppose the business uses an agency that charges 20% of salary. Replacing one £30,000 employee then costs £6,000 in fees. Across 10 departures, the annual bill reaches £60,000.
Now allow 40 working days to fill each vacancy. At £30,000 divided by 260 working days, the salary equivalent is about £115 a day. If an empty role means the business loses output of that value, the gap adds roughly £4,615 per departure, or £46,154 across 10 vacancies.
That assumption needs care. A salary is not a direct measure of the revenue or profit an employee produces. Some work can wait; some can be shared. Other work may be lost altogether or require paid cover. An SME should use its own figures for missed sales, overtime, temporary staff or delayed projects wherever it can.
Filling the role does not end the cost. If a new hire works at half the role’s expected output for the first three months, the shortfall, using the same £30,000 annual value, is £3,750 per hire. For 10 hires, that is £37,500. On these assumptions, agency fees, vacancy time and the learning curve total about £143,654 a year.
There are costs the simple model leaves out. Managers spend time reviewing applications and interviewing. Colleagues may take on extra work, while a departing employee’s knowledge of customers and processes cannot always be handed over neatly. These effects are harder to price, so it is better to record what the business actually experiences than to add a sweeping estimate. CIPD’s guidance on the cost of labour turnover provides a framework for businesses that want to build a more detailed picture.
Put benefits spend through the same test
Benefits and engagement initiatives also have a cost, and they do not guarantee that anyone will stay. They should face the same scrutiny as recruitment spending.
Take a hypothetical package costing £60 per employee each year. For 50 people, that is £3,000. Add £1,800 of administration and a £1,000 setup cost, and the first-year spend is £5,800. The link to Gifteo’s employee engagement platform offers one example of the type of service a business might consider; the figures here are modelling assumptions, not a quoted price or a claim about its results.
What would that investment need to achieve? A fall in turnover from 20% to 15% equates to 2.5 fewer departures on average each year for a 50-person business. Using the assumptions above, the expected annual cost avoided would be about £35,913: £15,000 in agency fees, £11,538 during vacancies and £9,375 while new hires get up to speed. That exceeds the illustrative first-year spend by about £30,113.
Real departures come in whole people, of course. A smaller business should assess the result over several years rather than expect exactly 2.5 fewer resignations in one. It should also ask whether the proposed benefits address the reasons its people leave. A perk cannot fix an unmanageable workload, poor supervision or limited prospects. Acas guidance on retaining staff covers the factors that most commonly drive people to leave and the steps employers can take to address them.
Build a model you can revisit
Start with the business’s own turnover, average salary, hiring fees and time to fill a role. Estimate the work lost while the seat is empty and how long new starters take to reach full output. Then compare those costs with the total annual cost of the benefits under consideration, including setup and staff time.
Review the figures as people join and leave. Exit feedback and benefit use can help explain what changed, although they will not prove that one initiative caused a drop in turnover.
For SMEs watching every pound, the useful question is not whether benefits sound cheaper than recruitment. It is how many departures a particular investment would need to prevent to cover its cost. Once that number is clear, the business can make a decision grounded in its own experience.
Key takeaways
- For a 50-person SME with an average salary of £30,000 and staff turnover of 20%, agency fees, vacancy time and a new hire’s learning curve could total about £143,654 a year.
- At an agency fee of 20% of salary, replacing one £30,000 employee costs £6,000, and 10 departures a year push the bill to £60,000.
- A salary is not a direct measure of the revenue or profit an employee produces, so businesses should use their own figures for missed sales, overtime, temporary staff or delayed projects.
- In the illustration, cutting turnover from 20% to 15% would avoid about £35,913 of costs a year, exceeding an illustrative first-year benefits spend of £5,800 by about £30,113.
- A perk cannot fix an unmanageable workload, poor supervision or limited prospects, so businesses should check whether proposed benefits address the reasons their people leave.
