Did you feel that?
That thunderous boom that seemed to have rocked your entire company out of nowhere?
It’s the Great Resignation – millions of individuals across the country, from front-line employees to senior executives, are quitting their jobs every month.
In fact, over 4 million Americans just quit their jobs in August according to the U.S. Bureau of Labor Statistics.
That’s why, in today’s post-pandemic world, learning how to attract (and retain) talented employees is as important as ever.
If you aren’t dialed in to your company’s attrition rate (also referred to as churn rate), don’t worry.
We’ve laid out everything you need to know about attrition rate in this post, including how to calculate attrition rates, causes of high attrition rates, and actionable tips on how to increase retention.
So if you’re ready to improve your staff attrition and keep your best employees, read on.
Or if you’re eager to instantly start filling some open positions, bookmark this page and head over to the Insight Global hiring page and we’ll help you add team members right away.
Let’s get started.
What is Attrition Rate?
Employee attrition rate is the measure of employees who have left voluntarily or involuntarily over a period of time. It’s typically used as a metric for employee retention and is expressed as a percentage.
The higher the attrition rate (or percentage), the more difficult it will be to keep up with business goals and objectives.
But before we dive in on how to calculate attrition rate, let’s find out the relationship between employee attrition and retention – two terms that often get confused with one another.
Attrition vs. Retention
As we know, there’s a difference between attrition and retention. Although the two sound very similar, they’re entirely different concepts that require very different approaches to combat them.
Attrition is when employees leave their job. This could be because of retirement, death, sickness, leaving for another opportunity, or – as we’ve seen lately – due to COVID-19.
Retention is when an employee stays at their job for a certain period of time. On its own, retention data isn’t very informative about your company’s health.
But together, they two terms can be helpful in recognizing trends you can act upon to help your business thrive.
A high retention rate typically means that your company has a low attrition rate.
In simple terms
- Attrition is the percentage of employees you’ve lost over a certain amount of time
- Retention is the percentage of employees you’ve kept over a certain amount of time
Why Attrition Is Important to Your Business’s Success
Attrition is one of the most under-discussed yet essential concepts in business. It’s what happens when people decide to quit their job at your company.
The trick with employee attrition is understanding who leaves your company, when they leave, and why they leave.
Let’s go over some of the popular reasons employees leave their job:
- Because they don’t like their boss/manager
- Because they’re unhappy in their current role
- Because they were offered a higher salary at another company
- Because they want more opportunities to advance their career
- Because they don’t have a strong work-life balance
- Because they don’t receive enough coaching or feedback
It’s important to recognize attrition rate and reason’s why employees are leaving because it can give you insight on areas where you can improve your company.
For example, if an employee leaves because they didn’t have a good relationship with their boss, it’s worth assessing the relationship between employees and their direct managers.
If your employees want training for career development, consider offering it to them. If you can’t provide it right away, there’s no harm in telling them that you’ll look into for the future, so they don’t get discouraged and leave.
Another reason attrition is important to your company’s success is because high attrition rates can be costly.
According to a recent Gallup study, replacing an employee can cost companies one-half to two times the employee’s annual salary.
And if you’re like most businesses, your company is constantly looking for ways to cut costs and increase revenue.
If you make the effort to improve employee turnover, you can reduce costs associated with replacing employees while simultaneously increasing revenue by developing your team to become more effective.
Attrition is also interesting because it affects other company metrics—such as customer acquisition rate and sales growth.
If your company’s attrition rate increases, you’ll likely see a decrease in customers acquired annually. This is because your company is losing valuable employees who likely knew how to effectively market and sell your product/service to potential customers.
Now that you understand why attrition rate is important, let’s jump into calculating attrition rate.
How to Calculate Employee Attrition Rate
The employee attrition rate calculation depends on whether attrition is being measured on an annual basis, quarterly basis, monthly basis, or daily basis.
Nonetheless, the attrition formula is very simple.
To calculate your company’s attrition rate (%):
- Write down the number of employees at the beginning of the time period you’re measuring for
- Subtract the number of employees who left during that time period
- Add the number of employees who were hired during that time period to the total number of employees after departures
- Add the number of employees at the beginning of the time period to the number of employees at the end of the time period and then divide that number by two to get your average # of employees for the time period
- Divide the number of employees that left divided by the average number of employees for the time period
- Multiply the decimal by 100 and that is your attrition rate percentage
Let’s look at an example.
Let’s say you want to measure attrition rate for Q2.
At the beginning of Q2 you had 496 employees. 49 left during the quarter and you made 18 hires during the quarter.
496 – 49= 447
447 + 18= 465
496 + 465 = 961
961 / 2= 480.5
That means your average number of employees during Q2 was 408.5
49 / 480.5= 0.102
0.102 x 100 = 10.2
Your attrition rate for Q2 is 10.2%
As noted earlier, you can use this attrition rate formula do discover your annual attrition rate, quarterly attrition rate, or monthly attrition rate.
Types of employee attrition
Now more than ever, employee attrition rate should be a top priority for employers and managers.
But you need to know more than just your numbers – because attrition rates can differ by demographics like age groups and career paths, an employee’s gender, race/ethnicity, and education level.
The causes behind the attrition are equally varied. Here are different types of attrition you should know:
Attrition due to retirement
In many industries, employees who have reached a certain age or have been employed by a company for a significant length of time are more likely to retire. This type of attrition is also referred to as “normal attrition” or “natural attrition.”
Employee turnover can also be caused by employee decisions to leave the company. This type of customer attrition is usually referred to as “voluntary attrition” or “employee turnover.” It can be caused by employee satisfaction.
An employee’s decision to leave a company may not be his or her own decision. Instead, it may be an employee “involuntarily” leaving the company due to termination, demotion, or lack of promotion.
Internal attrition is caused by internal factors, not external ones like other types of attrition. This is most often seen in career fields with high mobility and temporary job durations, such as the military and retail.
The type of attrition to be expected also depends on the specific demographics of employees. For example, younger workers tend to have higher turnover rates than older workers.
What is a Good Attrition Rate?
While it’s difficult to define a “good” attrition rate, businesses should generally aim for an attrition rate of 10% or lower.
Keep in mind however that this number will vary from company to company and industry to industry, depending on the circumstances.
It’s all relative to the size and type of your company, so it’s hard to give a genuinely objective number.
Just remember that as long as your attrition rate goes down over time, you’re on the right track.
Causes of High Attrition Rate
Whatever your average turnover rate may be, the most important thing is to recognize the why.
Sometimes, as we mentioned earlier, attrition can be natural.
But when your attrition rate is high, it’s key to focus on voluntary attrition because it can give you perspective on areas within your company that you can improve to create a better corporate culture and reduce staff turnover.
Here are some common causes of high attrition rates:
Simply put – people want to be recognized. If there’s a lack of employee recognition at your company, your team members may start to feel unappreciated and undervalued.
They’ll start asking fewer questions, have less motivation to get things done, and overall won’t feel like they’re making meaningful contributions to the company.
While it may be difficult to give feedback to every employee, regularly check in with your team members to ask how they’re doing, what’s working well, and if there are any areas of improvement.
When employees don’t see any career advancement opportunities, they’ll eventually start looking elsewhere for a place where their talents can be used and they can earn more money.
Whether this means moving up in the company or simply switching to a different one, it’s important to let your employees know that their career is important to you and that the opportunities are available.
If you’ve asked your employees to take on more work but aren’t willing to pay them accordingly, they’re going to notice.
Asking team members to take on new responsibilities without any sort of compensation can create feelings of resentment toward the company, which may ultimately lead them to leave.
If your employees are feeling underpaid, look at what comparable companies are offering for similar job roles.
The worst thing you can do is to risk losing your team members by not paying them what they deserve.
If your company has an official list of core values but it doesn’t seem to be translated into actions, your employees are going to notice.
They’ll see that while your company is communicating certain values, it’s not actually practicing anything.
This will take away from the organization’s reputation and make it feel less credible.
If you want your employees to buy into your company’s mission, vision, and core values, they need to see that you practice what you preach.
Let’s face it, there will always be days when you get pulled into work and can’t make it home in time for dinner with the family.
But when your team members are constantly having to skip plans, work weekends, and come in on holidays just to catch up on their workload, they’re going to feel like they’ve lost their personal lives.
It’s important for your employees to maintain a healthy balance between work and play, so try to be available for your team members if needed, but also encourage them to prioritize their personal lives.
How to Improve Employee Attrition Rate
Employee retention is one of the most important goals of managers and company owners. After all, it costs about twice as much to find a new employee as it does to keep an existing one.
So how do you improve employee attrition?
Evaluate Your Employees’ Goals and Motivations
Before you can offer opportunities for advancement, you need to know what your employees are looking for.
Do they want additional responsibilities? A chance to work on special projects? A chance to work more closely with management?
Be in consistent communication with your employees to make sure you are aware of their goals and motivations.
Keep Your Culture Strong
Employees don’t just quit their job; they quit their companies.
Be sure that you’re promoting a positive culture and encouraging healthy relationships among them. This will help to make your company a desirable place to work.
Have an Open Door Policy
Employees need to know that they can come to you with problems or concerns without the fear of retaliation. Make sure they understand that their opinions are valued and that you are approachable.
Challenge Your Employees
Some employees may not have the courage to ask or volunteer for new opportunities. If you think an employee would be great at handling new tasks, approach them with an opportunity to grow in their role.
Whether it’s offering competitive compensation, career development opportunities, or new responsibilities, employees will recognize when you’re giving them chances to enhance their work life.
Give Regular Feedback, Good or Bad
It’s essential to let your employees know if they’re meeting or exceeding expectations, but don’t forget to give them feedback if they aren’t. Make sure your praise and criticism are specific to know precisely what they did to earn it.
The Great Resignation has impacted business all over the country and has forced companies to put a bigger emphasis on attrition rate in a post-pandemic world.
Now more than ever, business need to know what attrition rate is, why it’s important, how to calculate it, and how to improve it.
Failure to do so could lead to a decrease in revenue, customer acquisition rate, and sales growth for your company.
And worst of all – you wouldn’t know the reasons why employees are leaving and what you can do to keep them.
If you read through this post, you should be well-equipped to improve your attrition rate and keep your best employees.
If you need some help filling some open positions, check out the Insight Global hiring page and we’ll instantly connect you with top talent.