How Your Company’s Attrition Rate Could Be Impacting Your Business
Happy employees are the key to a successful business. According to the University of Oxford, happy employees are 13% more productive. High employee satisfaction can go a long way towards your bottom line.
Of course, when your employees are not happy, that shows too. You’ll likely see a slowdown in productivity, a change in the work environment, and you may start seeing an increase in employee turnover.
What have you noticed in your own organization? Are employees loyal and in it for the long haul, or are they leaving in droves? If you’ve been seeing more and more employees leaving the company in a short amount of time, it might be time to calculate your attrition rate and examine what’s really going on in your organization.
There are a variety of metrics that you can use to determine how your employees are doing. Many of them focus on productivity metrics such as progress to goals. However, these productivity metrics don’t tell the whole story.
That’s why it’s important to understand your attrition rate to help determine the health of your organization. Let’s discuss what an attrition rate is and how to lower it.
Understanding your team’s attrition rate is important for the health of your organization because having a high attrition rate can have devastating impacts on your team’s success. With too many experienced team members leaving at once, you run the risk of losing valuable organizational knowledge and losing revenue from repeated hiring and onboarding costs.
Now that you know what an attrition rate is, let’s review how to calculate it for your organization.
How To Calculate Attrition Rate
To calculate the attrition rate, take the number of people who have left your company (or team) and divide it by the average number of employees over a period of time. You then multiply that figure by 100 to present it as a percentage.
Let’s say at the end of the year you had 500 employees in your organization. During the first quarter of the following year, 100 employees left. This would leave you with an attrition rate of 20% for that time period.
It’s worth noting that a team’s attrition rate can be subjective based on the size of the company. Though there is no single number that is considered a good or bad attrition rate, later on, we’ll cover the important factors to keep in mind when reviewing your team’s attrition data, and when to take action.
Before we dive into that, we need to understand that not all employee exits are created equal. There are four different types of attrition and each one may be saying something different.
Types of Attrition
People leave jobs for various reasons – some voluntary and some involuntary. Let’s look at the four categories of attrition and what they mean.
- Voluntary attrition occurs when an employee chooses to leave a position on their own accord.
- Involuntary attrition occurs when an employee has been released from the company.
- Internal attrition occurs when employees move from one position to another within the same company.
- Demographic-specific attrition occurs when there is a noticeable pattern of a specific group leaving a team or company during a given time period (this can be age, gender, ethnicity, parental status, etc.)
Internal attrition is generally not a cause for concern. If employees feel comfortable staying within the same company, it’s often because overall, the culture is good and they are just looking for a promotion or new opportunity.
This can, however, be an issue if an entire department makes an exodus to other areas of the company. This suggests that you may have a management problem in that area.
Next would be involuntary attrition. These employees are being asked to leave the company. They may have been performing below expectations or weren’t a good fit for the role. When this happens, it’s a good idea to review hiring procedures and guidelines to ensure your team is hiring individuals who have the best chance at being successful in their role.
Voluntary attrition is much more concerning. If you have a large number of employees leaving the company at once, there may be an issue with your company culture, management, or compensation. In a bit, we’ll discuss how to identify and correct these issues.
Finally, if you are seeing demographic-specific attrition, there may be a very big problem at play. When people of the same gender, age group, ethnicity, sexual orientation, parental status, or any other personal characteristic are leaving en masse, it may be because of systemic issues in how your company is structured and operated. A close examination of your culture and operations is warranted.
High Attrition Rate
As mentioned above, attrition rates are relative depending on the size of the company. To understand if your attrition rate is higher than it should be, compare your attrition rate to your retention rate for the same time period. Your retention rate measures the number of employees who have remained in your organization.
To calculate your retention rate, divide the number of employees who have remained in your organization by the number of employees you started with (this should be the same figure you use to calculate your attrition rate) and divide this number by 100.
If you suspect a high attrition rate, it’s important to compare your numbers to other companies in your industry, in your geographic location, and within the company, compare departmental attrition numbers to other areas of your business. These comparisons will alert you to any problems or may put your mind at ease.
Aside from the possibility of having an unhappy team, there are several other problems that can occur when your attrition rate is high.
- Frustrated Employees – When someone leaves, their work doesn’t stop getting done. Often other employees will have to take over their responsibilities until a backfill is hired. In some instances, that individual’s role may not be filled, and their work may be absorbed by other members of their team which could lead to overwhelm and burnout.
- Team Dynamic – While you may not love everyone you work with, professional teams have often built rapport with one another. When one person (or more) leaves the team, there is an adjustment period that can be felt throughout the department.
- Loss of Knowledge – If an employee chooses to leave, they will sometimes provide enough notice to document their processes and procedures for their replacement. However, even when they do, it’s unlikely that they’ll be able to provide them with the depth of knowledge they have accrued during their tenure.
- Resource Constraints – Hiring costs can add up. It’s estimated that it costs about 50-60% of the departing employee’s salary to hire a replacement for their role.
Average Attrition Rate
With all this talk of attrition rates, you’re probably wondering how your company compares to other organizations out there.
First, it’s important to note that attrition rates can depend on a lot of different factors. As you can imagine, the stress level in certain industries and roles is considerably higher than in others. This may sometimes account for higher attrition rates. Geographic concerns such as rising home costs could also impact the number of employees leaving their jobs.
In 2021, the US Bureau of Labor Statistics reported the average turnover rate was 57.3% across industries.
Low Attrition Rate
It is important to note that while a high attrition rate can be bad for business for the reasons listed above, an extremely low rate could be detrimental as well. Why? Because without the ability to bring new employees who offer unique perspectives and skillsets to a team, an organization could reach a point of stagnation.
Bringing new people to the table can increase ingenuity and creativity, and help a company make positive changes.
How to Lower Your Attrition Rate
If you’ve calculated your attrition rate, compared it to other departments and other companies, and deemed it high, it’s time to get to work. There are a number of actions you can take to lower this attrition rate and put your company back on the right path.
The most important step is getting to the root of the problem. What is causing employees to leave? This is the biggest piece of information you need to make the correct changes.
Conduct Exit Interviews
There is nothing more valuable than feedback from an employee who has nothing to lose by being completely honest. You can set up a formal exit interview as employees give notice.
You’ll want to discuss a number of aspects of the business with them, including:
- Pay and Benefits – Your employees may be leaving simply because another company is offering them more.
- Recognition and Appreciation – Did they feel as if they were appreciated for their hard work?
- Management – If multiple former employees point towards the same manager as a source of their issues, you may have a leadership problem on your hands.
- Culture – Were they happy working for you? Were there aspects of the job and the atmosphere that caused stress or frustration?
- Mental Health – Even the best compensation can’t make up for unbearable stress. Were workloads too heavy? Was there an unhealthy work environment for employees?
- Safety – Did they feel that their safety was in danger as they carried out their responsibilities? If so, did they feel comfortable bringing their concerns to management? If they did speak to management, did they feel heard, and were any changes made?
Staff Interviews or Surveys
While current employees may feel more hesitant to air grievances, they can still offer valuable insight into the employee experience. While you may have workers willing to talk about their perceived issues, you may receive more thorough and honest feedback using anonymous surveys.
If you do choose to speak one-on-one with employees, avoid having interviews be conducted by their manager. If the problem is with management and leadership, they may not feel comfortable providing honest feedback.
Finally, if you do seek any feedback from current employees, ensure that their honesty is confidential. If any information shared in confidence becomes public knowledge traceable back to a specific employee, it can be a breach of trust and inhibit future feedback.
Employees leaving is a symptom of a problem, not the problem itself. While a high attrition rate can be concerning in any organization, it’s important to do the work and find out what’s actually causing the issue. Once you’ve identified areas for improvement, seek to make the necessary changes for your team.