Blog Single

11 Dec

A large expense you probably don’t track

A large expense you probably don't track.

All nonprofit organizations watch their expenses. Your largest expense is between payroll and your lease. But there is one large expense most nonprofits don’t research or define very well. Your next largest expense may surprise you. Let’s talk about retention.

As I have discussed before, replacing someone in  your organization can cost between 1.5 and 2.5 times their salary. In addition to that cost, you will lose credibility with your donors, your community, your staff, and your volunteers if your organization continually loses talent. Let’s first discuss how to define this expense: 

  1. How much do you spend recruiting for this position? Include the time it takes for staff to review and process applications, the cost/time for interviews, and the cost of the ads or recruiters. 
  2. How much will you spend training for this position? Calculate how much time will be spent and the hourly rate plus benefits for the person who is designated as the trainer.
  3. Calculate the loss of productivity and donations that will occur during the transition period for this position.
  4. Calculate the cost of orientation, certification, insurance and other associated costs with this position.
  5. When calculating the salary, include 30% for fringe benefits which include payroll costs/taxes.

I worked for a Fortune 250 company that calculated the cost of training a part time or full time associate at $2,565. They had 330,000 associates. Their turnover rate was 72%. That means they would lose 2/3 of their staff regularly or 237,600 associates. If you do the math, that equals $609 Million lost on replacing associates. Instead of investing a fraction of that money on training managers and improving the employee experience, they simply replaced them as if they had no value. Once your organization has determined how much you are losing replacing staff,  you will be able to calculate the loss accurately and include that loss in your budget. 

To improve retention in your nonprofit organization, the following strategies have proven successful:

  1. Pay at the 50th percentile of your metro market. Use services like to determine what payrate is appropriate for your market. Many nonprofits use the excuse “we can’t afford it”. If your organization pays properly, then you will save money. What you cannot afford is to lose people on a regular basis. 
  2. Offer a professional development program to ensure there is growth potential in your organization. This should be sponsored by the board of directors and become a part of your culture. 
  3. When conducting performance reviews, do so on a 90 day basis. All employees, especially nonprofit employees, need to know where they stand. When you meet with your employee every 90 days you are, in a sense, writing their annual review as the year progresses. In addition, you can address or recognize performance issues (or wins) early on so you can reward or correct behaviors quickly and maximize results. 
  4. Listen. I know this is simple but acknowledging your staff and allowing them to be heard is critical to retention. Make yourself available and consider all feedback. 
  5. Recognition: If you don’t have a formal, scheduled recognition program, you should develop one today. Without recognition there is no retention.

These five simple steps can cut your turnover rate in half if not lower. If you require more strategies and assistance with retention, ask an expert. You will always save money in the long run and properly measure and monitor one of your largest  expenses. Remember, you can’t manage what you can’t see. 

Brad Lebowsky, MBA

CEO: Nonprofit Engagement Advisors, LLC


Related Posts

Leave A Comment