Updated: August 18, 2021
You know that retaining high-performing employees is crucial to your company's success.
So you put measures in place to help you reduce turnover; you provide good benefits, offer the option to work from home, even have a beer tap in your breakroom. But how do you know if these measures are working?
Attrition rate is the statistic you need. It sounds arcane, but it's a simple metric that provides insight into your company and how well you're retaining employees.
Let's dive deep into understanding attrition rate, why it is essential, and how can we calculate it?
What Does "Attrition Rate" Mean?
Before we get into the calculations, let's talk about the definition of attrition rate. From a broader perspective, attrition rate is the number of people moving out of a larger group over time, for instance, a company.
In business, attrition rate is a measure of employee turnover and helps you understand how well you're retaining your top talent.
A high attrition rate means that your employees frequently leave, while a low rate indicates that you're keeping your employees for more extended periods.
Why is Attrition Rate Important?
Understanding your attrition rate gives you important insight into your company. Suppose your employee attrition rate is high, for example. In that case, it might mean that you're not providing enough benefits to keep your talented employees from seeking higher pay or a better benefits package.
Such results call for re-evaluating what your employees are worth to your company and looking at the problems you need to solve to make sure that you keep them around.
There are many reasons your employee attrition rate might be high—we'll look at some of them in a moment—but it's always a warning sign that you should be aware of.
Keep in mind that different industries and companies will always have different attrition rates. So what's considered to be a high rate in one industry might be very low in another. But it would be best if you always aimed to keep your attrition rate as low as possible.
Let's talk about the attrition rate formula and then look at how you might use it.
How to Calculate Attrition Rate
Calculating attrition rate at its most basic level is easy: divide the number of people who left your company by the average number of employees over a specific period of time.
Let's say at the beginning of the year, your company had 50 employees, and over the course, your employee count has increased to 65. However, 13 employees recently left the company. So, to calculate the attrition rate, here is the formula you will use.
Annual attrition rate = 13 / ((50+65) / 2)
= 13 / 57.5
The number of employees that left the company (13) is divided by the average number of employees across the year (115/2, or 57.5).
This is the simplest way to calculate attrition.
Of course, it doesn't have to be annual; you could calculate it on a monthly or quarterly basis, as well. In fact, that may be a better idea.
Attrition Trends Are More Important Than Attrition Rates
Having an idea of your attrition rate is essential. But it is more important to understand the underlying trends of a high attrition rate.
For example, if you have an annual attrition rate of 5%, that might seem pretty good. But if the first six months of the year had a rate of 2% and the second six months had a rate of 8%, you may have cause to worry.
You always want your attrition rate to be going down. You should always be taking steps to improve your employee retention.
And to find out if your efforts are working, you need to keep track of attrition over time. You should track attrition rates monthly and quarterly and the results recorded and analyzed.
To decrease your attrition rate, you'll need to understand what's causing that attrition in the first place.
So, What Causes High Attrition Rates?
Employee attrition is expensive. By some estimates, it could cost a company six to nine months of an employee's salary to replace them. So if you lose an employee making $60,000, you're looking at $30,000 to $45,000 to recruit, hire, and train a replacement.
Even employees that occupy lower skill tiers are expensive to replace. Therefore, it's in your best interest to keep attrition rates as low as possible. To do that, you'll need to dive into what's causing a turnover at your company.
Here are a few things to consider:
Employees that are highly stressed are more likely to quit their jobs. A recent study showed that job stress has a negative impact on performance and a positive correlation with leaving the company.
And TinyPulse found in 2015 that 70% of surveyed employees felt overwhelmed by their workload. So helping employees manage their workload and giving them the resources to do so is a great way to reduce attrition rate.
Not sure how to help employees manage stress? 6Q has some great ideas.
If your employees don't feel like they're being paid a fair wage, or they discover that they can make more money elsewhere, there's a good chance that they'll leave your company. The possibility for a higher salary elsewhere significantly increases the chances an employee will leave.
Of course, we understand that you can't just increase everyone's salary whenever you want to increase retention. But with how expensive it is to replace an employee, the investment starts to look a lot more manageable.
Annual pay raises feel like a thing of the past, but they could be one of your best tools to increase retention.
Feeling appreciated is very important to employees, yet employers routinely overlook this fact. In 2016, Gallup found that only one in three workers thought they'd received adequate recognition in the past week.
They also called employee recognition a "low-cost, high-impact activity."
The recent Global Culture Report by OC Tanner report on employee recognition contains several eye-opening statistics. For example, 87% of employees think their employee recognition program is stale and outdated.
Moreover, these companies understand and leverage appreciation to create a positive environment that's conducive to retention.
Putting an employee recognition program in place is excellent, but you can start small. Have meetings with your employees and let them know what they're doing well. Recognize significant accomplishments and let employees know you appreciate them.
4. Room for advancement
No one wants to feel like they're stuck in their current job forever. So if your employees don't feel like they can move up to a higher position or a different set of responsibilities, they will be looking for employers that will provide them.
This factor can be almost as important as being paid a fair salary. As a result, a surprising number of employees say that they'll need to leave their job to advance their careers.
Offering advancement opportunities is an easy way to counteract this turnover driver. But, of course, training and professional development go hand-in-hand with this strategy—and although it costs money to engage in these activities, remember that it will never cost as much as replacing your employees.
5. Work culture
It's easy to overlook work culture as a cause of employee attrition, but it's an important one. Creating an employee-centric, positive work culture is crucial for retaining your best employees.
It begins even before that, though, with hiring employees that fit with your company's culture. Company culture is a huge topic, but you can start by being more intentional about fostering positivity and recognition. Work culture goes hand-in-hand with every other item on this list.
Of course, every company has different factors underlying turnover. And to reduce your attrition rate, you'll need to look at the specifics of your own business.