This morning I had the honor of catching up with Brent Stoltzfus, CEO of EG Stoltzfus, a large regional residential and commercial construction company based in Lancaster, PA. He is a trusted friend and adviser.
I called him for help with setting a reasonable bar for home builders when it comes to staff turnover. I explained to him that in my research I’d uncovered an average employee turnover rate for American businesses of 17.8%. I also noted a report I’d read regarding our home building industry’s employee turnover as much higher, with numbers between 20 – 38%.
I called him because his company is the strongest company I’m aware of when it comes to employee retention. I asked him what his employee turnover rate was, to which he replied, “I’m not sure.” So I said, ‘Well, how many employees do you have?’ “70.” ‘And how many did you replace last year?’ “One I think”. ‘I’m sorry, what?’ “I think we replaced one.” ‘Okay so your annual turnover rate is .7%, that’s ridiculous. Congratulations dude, you guys rock.’
Unfortunately .7% turnover rate is far from the norm in pretty much any business. But should it be?
So why the immediate interest in employee turnover rate? Well, it’s pretty simple. I recently conducted a Culture Strong audit of a home builder who I admire and respect greatly. During the audit we uncovered an organizational structure that fosters an environment of independence rather than corporate solidarity. This lack of solidarity negatively impacted net profits in 2019 by nearly $70K through employee replacement cost (ERC).
What does this mean for you? Take a home builder with 50 employees and apply an average turnover rate of 17.8% (this means he replaced 9 employees this past year). Now factor replacement costs of said employee. Next, set the average wage at say $35K thus resulting in an ERC of $7,350 per employee. Finally, multiply the number of employees turned over (9), by the ERC of ($7,350) and the result is a loss of $66,150.
If that number isn’t painful enough, consider the emotional impact of replacing one employee to the customer whose home they are managing, or the supplier whose work they are scheduling, or the colleague who’s left holding the bag. So what is the value of customer emotions?
Emotional impact is a very difficult factor to quantify. However, to give you an example, The Harvard Business Review (HBR) published a study called The Science of Customer Emotions which states that a customer who is emotionally connected to your business is 74% more valuable then one who is “Highly Satisfied”.
For everyone who aims for highly satisfied customers, guess what? You’re aiming at the wrong thing.
So what is the solution to painful employee turnover?
I’m reminded of what the legendary coach of the Green Bay Packers Vince Lombardi told his team at the start of training camp in the summer of ’61. They had been beaten in the National Championship in a 4th quarter come-from-behind-victory of the Philadelphia Eagles!
I think most people would have focused on improving; taking their skills to the next level. But not coach Lombardi. Coach was thinking about the importance of mastering the basics. That is why at the beginning of spring training he held up the pig skin in his right hand and said, “Gentleman, this is a football.” 6 months later they won the National Championship 37-0 over the NY Giants.
Simply put, “make sales and manage margins” are the basics to winning in business, says my wise friend Brent Stoltzfus. Managing margins can be handled through a variety of methods. However the only method that will generate those clients referred to in the HBR study (the ones who are 74% more valuable to your business than those who are “highly satisfied”) are those built from a foundation of “cultura”.
The Latin root of the word culture is “cultura” and simple means, “to care”. Are you providing a platform in your business that empowers people to care? If not, you don’t have culture; and you will always have a hard time retaining employees and suppliers. Much worse, your customers will be talking about you to their friends and it likely won’t be nice.