The Cost of Turnover

When it comes to turnover, game companies tend to look extremely good or extremely bad — there’s not much middle ground. This speaks to both the passionate nature of game developers, and the merciless development schedules (and/or questionable employment practices) of some companies. So, for those struggling with high turnover, I thought I’d write a little story. What’s it cost you when an unhappy employee (who could have been happy with better compensation, hours, and/or working environment) leaves your company?

Ramping Up, Ramping Down

Let’s talk about what happens when one employee quits a 200-person company (which spends $25M on salary and overhead, per year.)

For starters, let’s say that perhaps one month of paid time ultimately gets invested in “ramp up activity” for a replacement employee — learning internal tools and project history, developing relationships, etc. (It’s probably more than a month of time, spread out over the first nine months of an employee’s tenure, but let’s be conservative for argument’s sake.)

Let’s also say that an exiting employee burns half a month of time on his/her way out. (Again, this is probably conservative. The average person doesn’t bother to work very hard when they’re leaving a company, though many exceptions obviously exist. Regardless, half a month barely covers the notice period, much less the time the employee spent thinking about other offers, potential working at a slower pace, etc.)

Let’s also say that an exiting employee burns half a man-month of total time from the employees around him; managerial time that goes into interviewing replacements, dealing with the exit, etc; coworker time spent training new hires, absorbing aspects of the departing employee’s role while necessary, etc. Yet again, I’m being conservative — while some small percentage of employees might have little impact upon departure, a much larger percentage trigger ripple effects that you can and can’t predict. (i.e. “Does anybody know the password that Charlie used to lock down this old server?!”)

Recruiting, Relocation

So now we’re at a very conservative estimate of two paid man-months down the tubes. In engineering, this just cost you something like $14K. Maybe the new hire needs money for relocation. Make that $17K. Signing bonus? Recruiters’ fees? Those combined costs could easily exceed $30K for an engineer with just a few years of experience. But let’s assume that we can find 70% of hires without recruiter help. So our total cost is at approximately $26K.

Moving right along: let’s say our fictional new hire isn’t too senior… he’s lucky to get relocation! But it costs money to fly in interview candidates. Assume that most candidates are local: just $2K for transit / hotel costs. Chump change, baby. We also haven’t taken HR personnel costs into account. Assuming just a few days of total effort (spread over the time just before, during, and after hire) that comes to $1K or so. New total: $29K.

Rare (But Nasty) Ripple Effects

Can we put a value on possible losses caused by the transfer of proprietary knowledge (technological or strategic) from ex-employees to a competitor? Difficult. There aren’t always losses of this kind, but when they occur, they can amount to millions of dollars in damages. Damages also depend on the importance of the employee and the project s/he was working on. But if there’s a mere 0.5% (half a percent) chance that transfered intelligence results in $1M lost profit (or potential profit), $5K goes down the tubes, on average. New total: $34,000.

There’s also the chance that a departing employee will trigger other departures, especially if the departee is popular, if his/her departure causes lots of stress, or if s/he actively recruits for the new employer. Estimates on the likelihood of “domino” employee loss vary widely, but it’s reasonably conservative to assume a 5% chance of triggering three departures (on average), 95% chance of no extra departures. That’s another $2,700 in averaged cost.

In addition, if four people leave a group at around the same time, it’s going to cause a massive temporary hit to productivity. Everything depending on those people will slow down. A 5% chance of a mere 1% drop in productivity results in $12,500 in losses (that’s $25M * 0.05 * 0.01). New total: $49,200.

Productivity Predicaments

So far, I’ve been describing turnover as if it were a one-time event with one-time consequences. Unfortunately, high turnover hurts everyone on a team. What’s high morale worth? In this industry, some might argue that morale is everything (since creativity and morale are almost certainly correlated). But let’s give this a value. If total productivity drops just 5% due to low morale caused by (and causing) turnover, then 5% of $30M is… uh… $1.5M. And 5% is almost certainly a conservative estimate, since most unhappy employees that I’ve met put way less than 100% effort into their jobs.

Put another way, a 200-person operation with 20% turnover could spend about $12K more per employee on a variety of initiatives that might improve morale, and not lose a dime if it reduced turnover by half. Furthermore, product quality would improve, and everyone (including senior management) would enjoy life more.

Smells Like Common Sense

Much of this is common sense. But many executives still balk at putting more time and/or money into morale-raising efforts, much less enforcing a 40-50 hour work week… and I haven’t even gotten into the costs of burnout in general! (And please, spare me the fiction that multi-month crunch periods are inevitable; there are several legitimate development studios that have figured out how to maintain reasonable hours and still produce profitable games. I’m proud to note that Boston is home to several!)

But I’m not writing this article to attack long hours (many other people have already done a decent job of that.) I’m writing this to expose a cost of suboptimal working conditions, depressed salaries, and/or high hours. Nor am I suggesting that companies should strive to keep every employee; bad apples hurt morale just as much as high turnover does. I’m talking about a very specific thing: staunching the loss of good people. Turnover (as opposed to layoffs and firing) is unarguably a problem for some large video game companies.

Turnover is not a “Strategy”

Some people consider turnover a cheap way to lay off excess talent in between projects. But large companies have enough projects going at any given time that “downtime” should be manageable, not to mention that there’s always need for general technology development. Furthermore, some large independent studios (much less publishers) manage to control turnover very tightly, so how are they doing it? Regardless — when it comes to turnover, you lose good people along with the bad, and we all know that good people are too hard to find. Turnover is simply not a legitimate operational strategy.

PS. Check out this relevant article from the Harvard Business ReviewSix Dangerous Myths About Pay. It’s a nuanced look at working environments, not simply an argument for higher or lower compensation and perks.

PPS. Don’t forget the free towels!

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