Chapter 3
Understanding turnover

Depending on whose numbers you believe, a 5 to 10 percent shortage of drivers exists. A rebound in the economy along with more restrictive hours-of-service regulations certainly will increase the severity of the shortage in the coming years.

The first step in keeping your trucks filled is to take the attitude that no driver shortage exists for your company. There are more than 1 million drivers available for your company to hire. A 40-tractor fleet needs to attract only 0.0004 percent from this driver pool. Not accepting the driver shortage as an excuse for empty trucks means you have taken responsibility for keeping your trucks filled.

The high cost of driver turnover
Despite all the rhetoric thrown out at industry meetings about the importance of drivers, many people still think drivers are a dime a dozen. Nothing could be further from the truth. Every time a good driver walks out the door, so do thousands of dollars in lost profit.

Following are conservative estimates of the cost of turnover in terms of replacing drivers and the profit differential between good, average and poor drivers.

Cost of replacing a driver
The table above presents all the cost items a carrier may incur when a driver quits and the carrier hires another one.

The table gives a rough cost for each item and gives the total cost for replacement. The list begins with items a carrier cannot avoid. These include application processing, drug screening and the physical exam. With these unavoidable items, a carrier’s minimum cost to replace a driver is around $300.

Most carriers do not have a line of applicants waiting to be hired. The typical small carrier has to advertise and employ a recruiter on either a part-time or full-time basis. Quickly, this brings a carrier’s cost to $1,200.

When a driver leaves, most carriers expect to lose at least one week’s utilization of the tractor. This is a soft cost to the carrier of the lost profit contribution of that tractor. Most carriers’ gross profit margin is 30 cents a mile. At a low utilization rate of 2,000 miles a week, that computes to a lost tractor profit of $600.

Even small carriers will tie up a person on a part-time basis to teach orientation. Including pay for a new driver’s meals, lodging and travel during orientation, the cost for replacing a driver swells to more than $2,000.

Few departing drivers leave the tractor in a carrier’s yard ready to go. More than likely, you will need to reposition and clean up the tractor. Most carriers also provide the new driver orientation pay or a sign-on bonus. In addition, there may be a referral bonus due to an existing driver.

These costs can bring the typical carrier’s cost to replace a driver to $3,000, an estimate that may be low. More and more drivers are leaving carriers under less-than-ideal circumstances. A driver may abandon the truck, leaving without asking for a final paycheck because he owes the carrier money.

When such a scenario occurs, a carrier’s cost skyrockets. It might take weeks for the carrier to find the tractor, and the carrier must retrieve it at considerable cost. Every termination that turns ugly raises the carrier’s average cost of replacing a driver. This is why it’s critical to screen out potential problem drivers before you hire them.

Driver profitability
The high cost of replacing drivers is only part of the story. Once turnover begins to skyrocket, carriers start to scramble to fill empty trucks. Usually, this means lowering hiring standards.

The tables on this and the following page show the profitability of good and bad drivers. The example is a hypothetical trucking company that initially operates 100 tractors but doubles in size eventually. Its drivers are a mix of good, average and bad, all earning 30 cents per mile. Fuel costs are steady at $1.10/gallon. And revenue is $1.20 a mile for all miles. Interest and license fees are included in the equipment categories.

Under such circumstances, a good driver will generate $14,904 more annual profit than a bad driver. While this is only a projection, the profit margin shown for an average driver – 4.2 percent after interest and expenses – is similar to the industry average.

The profit spread between good and bad drivers only reflects immediate hard costs. Excluded are the hard costs of higher turnover presented above.

Excluding these costs, it’s possible that driver quality is one of the main reasons why a carrier that was extremely profitable operating as a small fleet may struggle to make money when it grows rapidly. The table above shows how profits can
suffer – dropping from more than 6 percent to around 2 percent – when a fleet’s size doubles and, as a result, poor performing drivers are brought in to meet the demands of growth.

There is an extreme profit differential between good and poor drivers. Carriers cannot let the desire to fill trucks lead to
a lowering of hiring standards. Nor can they afford to hang on to poor drivers even though it lowers turnover ratio.

Why turnover exceeds 100 percent
Turnover can be divided into new driver and senior driver turnover. Senior drivers are those with more than one year of experience driving for you. New drivers are those with less than one year of experience driving for you. Graduation is the term used when a new driver becomes a senior driver.

Senior driver turnover
Once a driver has been at a carrier for six months, he tends to stay a long time. At most carriers, turnover among senior drivers who have one or more years of seniority ranges from 10 to 20 percent. That is comparable to other blue-collar jobs.

Senior drivers stay with a carrier because they have developed a state of equilibrium between themselves and the carrier. They have invested the time to figure out the carrier’s paperwork procedures. They are content with the equipment they are driving. They have developed some credibility inside dispatch as individuals who will try to do a decent job.

Finally, and perhaps most importantly, senior drivers have figured out the carrier’s freight pattern. They know which loads to take to get them home or where they want to go in the country. Because they develop credibility with dispatch, they have more choice in which loads they haul.

At most carriers, turnover among senior drivers will remain low as long as no one upsets them. Carriers that experience high senior driver turnover can usually point to an event that upsets driver equilibrium. For example:

• Changes in operations, such as loss of a popular dispatcher or new head of operations.
• Change in pay package that is viewed negatively.
• Sale of the company or purchase of another carrier.
• Loss of key customer accounts with predictable freight patterns.
• Change in payroll or advance policy.
• Immediate competitors offering significantly higher pay rates.

New driver turnover
If turnover among senior drivers is in the 10 to 20 percent range, this means that turnover among new drivers is downright frightening. The chart below shows typical new driver turnover in terms of how many are left at the end of every two months of employment. Typical results for carriers with good, average and poor turnover statistics are shown. At the end of 12 months:

• Good carriers will graduate one in three new drivers to senior drivers.
• Average carriers will graduate one in five.
• Poor carriers will graduate one in eight.

This means that every time a good carrier loses a senior driver, it expects to hire three drivers before it finds a driver to replace that stable driver. The average carrier will need five new hires, and a poor carrier will need eight. At a cost of $3,000 per turnover, when a carrier loses a senior driver, the cost to replace that driver could range between $9,000 and $24,000.

Your graduation rate of new drivers to senior drivers will dictate what your turnover ratio is as you try to grow. Remember, for every truck you add to your fleet you may need to hire anywhere from three to eight drivers before you find a stable driver. The table below projects turnover for a typical fleet experiencing 15 percent senior driver turnover with or without growth.

Successful growth hinges on your ability to retain as many new hires as possible. One of the main reasons new driver turnover is so high is that the ease with which drivers can change jobs has created a job-hopping mentality among some drivers. While the quality of new drivers is an issue, this is no excuse for resigning yourself to high turnover among new drivers. Say your operation went through 50 new drivers in the past year. At least some of those drivers had the characteristics to become good drivers. Why did they leave?

• Believed recruiter promises weren’t met
• Disliked assigned tractor
• Poor income during first few weeks
• Felt cheated on pay
• Not as much home time as expected
• Got off on wrong foot with dispatch.

Overall turnover
The table on this page projects overall turnover for a carrier with a 10 percent growth rate. It assumes senior driver turnover ranges between 10 and 20 percent, with the graduation rate of new drivers to senior drivers varying between one in eight and one in three.

For example, if your senior driver turnover is 15 percent and one in six of your drivers go on to become senior drivers, your overall turnover is 125 percent. If you change your new driver graduation rate to one in four while keeping senior driver turnover the same, turnover is reduced to 75 percent.

This table shows why new driver graduation rates are the most important factor in reducing overall turnover. But don’t ignore senior driver turnover. If it goes up because senior drivers feel too much attention is paid to new drivers, then you will give up much of the ground you gained. You cannot afford to have any of your moneymakers leave.

The table illustrates another critical point. As you improve graduation rates from one in six, to one in four, to one in three, the average tenure for new drivers improves by 30 days.

To drastically reduce turnover, every carrier needs to work on getting the average new driver to stay an additional 30 days while maintaining or lowering senior driver turnover. Properly done, many of the steps needed to reduce new driver turnover will lower the rate of senior driver turnover as well.

Keeping senior drivers
As mentioned previously, if a carrier’s turnover rate suddenly jumps, there usually is higher than normal turnover of senior drivers. As a result, carriers with high turnover are trying to replace stable drivers with unstable ones. Remember that it takes between three and eight new hires to find one driver who will stay longer than a year.

The starting point in attacking senior driver turnover is to find the causes of the exodus and take immediate corrective action. Publicize that you took this action to solve the problem. Then, invite back any senior driver who has left.

When senior drivers leave, they are unlikely to find at the new carrier the equilibrium that made them happy in the past. They are now the new kids on the block, yet pride keeps them from asking for their job back.

Bringing back recently departed senior drivers puts stable drivers into trucks. Each senior driver who comes back reduces your hiring requirements by three to eight drivers in the coming year. That takes pressure off recruiting, immediately reducing the likelihood that they will take chances with whom they hire to fill trucks.

A major exodus of senior drivers usually has identifiable causes. But if you want to reduce normal senior driver turnover, you need to get them excited about working for you.

Carriers can generate excitement by implementing small improvements drivers view positively, such as:

• Letting senior drivers customize their tractor specs.
• Remodeling the driver’s lounge.
• Putting driver names on the sides of tractors.
• Implementing a football league for drivers and office staff.
• Dropping business with a customer with driver-unfriendly freight.
• Providing business cards for drivers.

If you are looking for more ideas, listen to your senior drivers. Once they understand that some of their ideas will be implemented, the floodgates will open.

The key is to give senior drivers positive improvements to think about or discuss among themselves. They probably will talk about the changes to many of the senior drivers who left. You must constantly send the message to these drivers that there is no reason to leave. They are already working for a carrier that listens to them and is working hard to become better.

Be careful not to implement too many positive changes at the same time. Change is exciting, but it becomes part of the landscape eventually. To keep the buzz going, give senior drivers one or two positive changes to talk about every month.

It may seem like a tall order to keep making positive changes every month. But remember, the changes do not have to be major. Little touches, such as sending birthday cards to drivers’ spouses, can go a long way. Implement one to two changes a month for a year, and you will be amazed at the transformation that occurs in your company.

An extra 30 days
Set a goal of every new driver staying an additional 30 days. Too many carriers assume that attacking turnover means figuring out how to get every new driver to stay for a year or more. That is not realistic. But the goal of having every new driver stay, on average, an additional 30 days is attainable. Everyone in your company can buy into achieving that goal.

As the average new driver stays longer, some interesting things start happening:

• Graduation rates start to increase.
  The longer new drivers stay, the better opportunity they have to become comfortable with your operating procedures. They begin to understand your freight pattern so they feel more in control over where they go and when they get home.
  
• You attract better drivers.
  Prospective drivers, particularly quality ones, pick up on carriers who are having trouble keeping drivers. They hear it in the recruiter’s voice, learn about it from former drivers or observe the number of empty tractors at the terminal. Lower turnover keeps these better quality drivers from being scared off.
  
• Hiring standards improve.
  As the average driver stays longer, it reduces the pressure on you to fill trucks. Recruiting can become more selective in hiring.

As new drivers start staying longer, many factors accelerate the trend toward lower turnover. The next two chapters address how to get the average driver to stay an extra 30 days.

In Summary
Replacing drivers costs thousands of dollars in recruitment costs and lost productivity. Refusing to accept the driver shortage as an excuse for empty trucks is the first step toward lowering your turnover rate. To drastically reduce turnover, you need to persuade the average new driver to stay an additional 30 days while maintaining or lowering senior driver turnover. Properly done, many of the steps needed to reduce new driver turnover will also lower the rate of senior driver turnover as well.