The Financial Impact of Employee Turnover

What franchisors need to know about the true cost of employee disengagement

According to the Society for Human Resource Management (SHRM), the cost to replace an employee ranges from 50 – 75% of the employee’s annual salary, while estimates from Gallup put the cost at one-and-a-half to twice the employee’s annual salary.

Cost Components of Employee Turnover

There are, of course, the hard costs associated with hiring: 

• Recruiting and advertising
• Time spent screening and interviewing
• Background checks
• Onboarding and training

But there are also more intangible costs: 

• Lost productivity
• Project delays and disruptions
• “Brain drain”, or the loss of institutional knowledge
• Decreased staff morale

To mitigate the costs of employee turnover, it is imperative that franchisors have effective employee engagement and retention strategies in place to combat employee disengagement—a major factor leading to turnover. 

Understanding Employee Disengagement

Symptoms and Causes of Disengagement

By first identifying the symptoms of employee disengagement, franchisors can  address the underlying causes effectively. Some common signs of disengagement include: 

• Decreased productivity
• Lack of initiative
• Increased absenteeism
• Decline in overall job satisfaction

Franchise Business Review’s Franchising at WORK research, which asked over 12,000 franchise employees 24 benchmark questions across eight core areas of employee engagement, showed that the lowest rated areas are support to do their job, clear communication from leadership, individual recognition for a job well done, fair compensation, and long-term career opportunity. 

By recognizing the symptoms and identifying the causes specific to your organization, franchise leaders and managers can take targeted actions to re-engage their workforce and create a thriving work environment.

Measuring the Cost of Disengagement

Quantifying Impact

Measuring the adverse effects of disengaged employees on business performance is crucial for franchise businesses to understand the cost of disengagement. Some of the metrics might include analyzing sales data to identify any decline in revenue, assessing customer satisfaction levels through feedback or surveys, and tracking employee turnover rates. 

This article on LinkedIn explains how to calculate the financial cost based on two metrics identified by Gallup: the percentage of actively disengaged employees at your organization and a percentage of their salary. While Gallup estimates that on average, 17.2% of an organization’s workforce is actively disengaged, the good news is that employee engagement in the franchise sector is extremely high. Overall job satisfaction among corporate franchise employees is 84%, with unit-level satisfaction running approximately 7% lower on average. 

Franchise Business Review (FBR) conducts employee engagement surveys specifically for franchise organizations to measure employment engagement within their organization as well as understand how satisfaction levels among their employees compare to other franchises. 

By quantifying the impact, franchises can gain insights into the specific areas where disengagement is affecting their bottom line and make informed decisions to address the root causes and improve overall employee engagement. 

Strategies to Reduce Turnover and Enhance  Engagement

Implementing effective strategies to reduce turnover and enhance employee engagement is vital for franchises seeking to create a positive and productive work environment, not just at the corporate level, but system-wide. 

Best Practices for Increasing Employee Retention and Engagement

• Streamlined Onboarding Processes: A well-structured and comprehensive onboarding program sets the tone for employee engagement from day one. Providing clear expectations, introducing company values, and offering opportunities for early successes can help new hires feel connected and valued.

• Recognition and Reward Programs: Recognizing and appreciating employees’ efforts and achievements is a powerful way to foster engagement. Implementing a formal recognition program that acknowledges individual and team accomplishments can boost morale and motivate employees to go above and beyond.

• Career Development Opportunities: Providing avenues for growth and development is crucial for employee engagement and retention. Offering training programs, mentorship opportunities, and career advancement pathways not only enhances employees’ skills and knowledge but also demonstrates a commitment to their professional growth.

• Regular Feedback and Communication: Establishing open lines of communication and providing regular feedback is instrumental in maintaining employee engagement. Conducting performance reviews, soliciting input and ideas, and ensuring managers are approachable and accessible can create an environment where employees feel heard and valued.

By adopting these best practices, franchises can create a workplace culture that values and supports its employees, ultimately leading to higher employee retention, increased productivity, and improved overall performance.

Helping Franchisees with the Impact of Turnover on Their Business 

Employee recruitment and retention is consistently a top challenge for franchisees, and franchisors are uniquely positioned to provide support to franchisees around hiring, retention, and employee engagement. 

Franchisors can add value and support to franchisees by educating them on the importance of employee feedback, providing training on best practices for employee engagement, and tools to collect employee feedback. FBR facilitates the feedback process for franchisees, creating a culture of feedback and continuous improvement across the entire network. 

To take the first step toward measuring employee satisfaction and creating a culture within your franchise organization that values its employees, reach out to Franchise Business Review for an assessment or request a demo of our employee engagement surveys. Together, let’s build a thriving franchise that invests in its most valuable asset—its people.

Related Content:

Franchising at Work Report: Employee Engagement Study

Read the full report to learn the detailed findings of the study, including:

• The biggest factors influencing employee engagement
• Top workforce trends impacting hiring and retention
• The state of employee well-being
• The status of remote and hybrid work in franchising

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