Dave Bookbinder
I tell business owners what their company is actually worth – before a buyer, judge, or IRS does | Exit • Estate • 409A | 3x Author | Podcast Host
December 3, 2025
When business leaders talk about turnover, the conversation usually centers on HR metrics; things like hiring costs, onboarding time, or employee engagement scores. Those are important, but they only scratch the surface.
The real cost of turnover shows up in the value of your business.
Here’s why.
Direct Costs
Replacing an employee is expensive. Recruiting, training, and onboarding costs add up quickly. For skilled or leadership roles, the cost of replacement can be anywhere from 50% to 200% of that person’s annual salary according to The Society for Human Resource Management (SHRM). Multiply that by a few key roles and the financial hit becomes significant. There’s also the lost productivity during the vacancy and the ramp-up time for a new hire. Yes, you’re not paying someone in that role, but there’s also no one in that role contributing to the organization’s goals.
Indirect Costs
But it doesn’t stop there. There are also indirect costs associated with replacing employees that aren’t fully captured in the statistics. Such things include: (i) the lack of productivity that the employee exhibits once they’ve made the decision to disengage; (ii ) the impact on remaining employees’ morale as they question the reasons behind the departures / terminations; and (iii) the real cost of lost productivity.
Operational Disruption
The real cost of lost productivity refers to the fact that while estimates can be made regarding when a new employee comes up the learning curve to a reach a satisfactory level of performance, it doesn’t account for the replacement of the institutional knowledge learned over time. These are what I call “the intangibles within the intangible.” High turnover creates instability. Processes break down when institutional knowledge walks out the door, and remaining employees shoulder more of the burden.
Disruption of the Talent Pipeline
According to the Society for Human Resource Management (SHRM), perhaps the largest indirect cost is the impact of departures on the disruption of the talent pipeline. SHRM estimates the inclusion of indirect costs to employee turnover to be between 100% and 300% of the annual salary. There’s also the opportunity costs of replacing an employee – a bad hiring decision can cost up to 5 times that employee’s salary according to SHRM.
Impact on Customer Relationships
When turnover affects client-facing roles, relationships can suffer. Customers don’t like having to “start over” with someone new, and that can weaken loyalty. Turnover isn’t just a cost issue; it’s a red flag. If a customer sees high turnover on their account, they start asking questions, like: Why are people leaving? Is leadership unstable? A business with fragile customer relationships carries more risk, and risk depresses value.
The Human Capital Factor
At the end of the day, your people are the ones who generate revenue, serve customers, and innovate for the future. If you’re losing them faster than you can replace them, you’re eroding the very asset that underpins business value. More about the Human Capital Factor HERE.
Pulling It All Together
Turnover is not just an HR issue – it’s a valuation issue. Every lost employee chips away at profitability, disrupts operations, increases risk, and ultimately lowers what your business is worth in the eyes of a buyer or investor.
If you’re thinking about maximizing value; whether for planning, shareholder issues, gifting, or a potential exit, paying attention to retention is critical.
If you’d like to explore this topic more deeply, please check out my conversation with Dr. Solange Charas on Behind The Numbers with Dave Bookbinder.
About the Author:
Dave Bookbinder is known as an expert in business valuation and the person that business owners and entrepreneurs reach out to when they need to know what their most important assets are worth. Known as a collaborative adviser, Dave has served thousands of client companies of all sizes and industries.
Working closely with business owners, CFOs, Controllers, and CEOs, Dave strives to build relationships that add value for the long term. Dave is also the host of Behind The Numbers, the business talk show that digs deeper to understand what matters in business. Available wherever you get your podcasts.
If you believe that people are a company’s most valuable asset, and want to learn more about the impact that people really have on the value of a business enterprise, you might like the Amazon #1 best-selling books, The NEW ROI: Return on Individuals (white cover), and The NEW ROI: Going Behind The Numbers (black cover).
Dave’s latest book, A Valuation Toolbox for Business Owners and Their Advisors demystifies valuation methods and sheds light on common mistakes, and was recognized as a top new release in Business, Mergers & Valuation.
For future insights and articles, connect with Dave on LinkedIn, like him on Facebook, follow him on Twitter / X. Please visit www.NewROI.com to learn more and be sure to check out Dave’s thought leadership at CFO University. While you’re here, you might also enjoy some of Dave’s other articles.
Views and comments are always my own.
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Copyright 2025 – Dave Bookbinder