May 28, 2013
By Bob Coleman
Editor, Coleman Report
“Grow to Greatness” was a four week class discussing how successful entrepreneurs have grown their business.
The theme of the course is the fifth “p” – people. (A previous offering discussed the first four p’s – planning, prioritization, processes and pace.)
The management of Leader’s Bank understand the cost of employee turnover and has committed itself to be a “best of class” work environment.
Anyway, check out this analysis as it pertains to small business loan business development officers.
“If you look at 4% retention in an industry that experiences 30%, if half of those people were business developers, what would be the cost to an organization and what would be the impact on shareholder value? We made an assumption that the average business developer is making $120,000 and he’s got a $12 million annual loan target, and we lose 4% of those versus the industry’s 30%, and there’s a vacancy rate of 90 days to get them replaced. And so we calculated a little bit of recruitment expense and then we looked at the opportunity costs that that person is not making 25% of their target because they were gone for three months and you can multiply that by a 2.48% average yield on a current loan. The opportunity cost is about $75,000, and there’s another 30-odd thousand dollars in recruitment and training expense. And so we calculated the turnover costs conservatively at $111,000. Now the ROI Institute says that a business developer’s turnover cost is about 125% of annual salary. So we’re going slightly under—about 95% of annual salary. We said, “Leaders Bank’s losing two business developers at a 4% turnover costs the bank $222,000.” And if it were six business developers and a 30% impact, that would end up costing $445,000, and saving nearly $300,000. If you multiply our earnings, our number of shares, it ends up being nearly $3 a share that it earned the shareholders by virtue of maintaining good, solid retention and low turnover.”