What is the meaning of attrition rate?

Attrition rate, or turnover rate, is a metric indicating the percentage of employees who leave a company within a certain timeframe. It's crucial for assessing workforce stability and the effectiveness of retention strategies.

The four types of attrition

Employee attrition rate can be affected by different factors such as an individual employee’s reasons, a company decision, or an entire group decides to leave. No matter what made the employee churn, conducting an employee exit interview is typically a good way to uncover the actual reason.

1. Voluntary attrition

This is when an employee chooses to leave the company on their own accord and could point to problem areas in the way you nurture employees.

The employee might be leaving because they are not satisfied with their role or they lack a proper learning and development strategy.

2. Involuntary attrition

A type of attrition is when the company decides to part ways with the employee and relieves the employee of their current job duties and responsibilities.

Common examples of involuntary termination include poor performance, behavioral problems, or being laid off.

3. Internal attrition

When an employee moves between departments, positions, and roles within the organization it’s considered internal attrition. Mainly because when an employee leaves their current position, that role is vacant, leading to a position-based turnover.

Internal movement within the company can be considered a positive, as that employee could have been promoted or qualified for their desired position.

4. Demographic-specific attrition

Refers to an entire specific group of employees leaving the organization at the same time. The group can consist of employees of the same age, gender, or ethnicity.

Why is understanding attrition important?

Understanding your employee attrition rate is important because it gives you critical insights into your organization's success. Knowing what the root causes of your staff turnover help identify ways to improve your company’s hiring, onboarding, and training processes. Constantly having to replace and train new employees has its cost.

Here are some benefits to managing your churn rate:

• Lower hiring costs
• Boost company morale
• Spend less time onboarding new employees
• Provide a better working environment
• Improve company reviews

What’s the difference between attrition and turnover?

Retention and attrition are two sides of the same coin in HR management. Retention focuses on strategies to keep employees engaged and motivated, reducing turnover. Attrition, on the other hand, measures the rate at which employees leave the company, voluntarily or involuntarily. Balancing both is key to maintaining a productive, stable workforce.

How to Calculate Attrition Rate

To calculate attrition rate, divide the number of employees who left the company during a specific period by the average number of employees in that same period. Multiply the result by 100 to get the attrition rate as a percentage.

By summing together all 12 months, you can also determine your organization's annual attrition rates.

What is the attrition rate formula?

The attrition rate formula, often expressed with mathematical notation, is as follows:

Attrition Rate (%) = (Number of Attritions / Average Number of Employees) x 100

For example, if a company started the year with 100 employees, ended with 90, the average number of employees would be 95. If 10 employees left during the year, the calculation would be:

Attrition Rate (%) = (10 / 95) x 100 = 10.53%This means the company's attrition rate for the year was 10.53%.

Of course, it doesn't have to be annual. You can calculate your attrition rate on a monthly or quarterly basis, as well. In fact, that may be a better idea.

What is a High Attrition Rate?

A high attrition rate indicates a significant percentage of employees leaving a company over a specific period, pointing to potential issues in workplace satisfaction, engagement, or growth opportunities. It can impact team morale and increase recruitment and training costs.

Employee churn 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.

What is a low attrition rate?

Low attrition rates suggest a stable workforce with fewer employees leaving the company, reflecting positive workplace conditions, high employee satisfaction, and effective retention strategies. This stability supports continuous growth and knowledge retention within the organization.

What causes a high attrition rate?

The causes of high attrition can vary by company and industry, but the common culprits are:

1. 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.

While early guesses attributed the high turnover to burnout and competitive pay, new research shows that toxic work environments are actually the biggest driver of employee attrition. Within industries, a toxic culture is 10x more likely to indicate a high attrition rate than compensation.

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.

2. Stress

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.

A Gallup survey found that 70% of surveyed employees feel overwhelmed by their workload. Helping your teams manage their workload and work-life balance is a great way to reduce attrition rate.

3. Room for advancement

No one wants to feel like they're stuck in their 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.

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. Although it costs money to engage in these activities, remember that it will never cost as much as replacing your employees.

4. Appreciation‍

Gallup calls employee recognition a "low-cost, high-impact activity". But it also gets at the fundamental human need to belong.

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.

5. Pay

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 or incremental pay raises feel like a thing of the past, but they could be one of your best tools to increase retention.

How to Reduce High Attrition Rates

Workplaces are seeing turnover at an all-time high. Turnover is expensive, kills productivity, and can hurt your profit, not to mention your reputation. With customers and employees in the driver's seat, you may be scrambling to keep them happy and engaged.

Here’s a few ways to lower employee attrition rate:

Step #1: Be proactive

One of the most important ways to fix a high attrition rate or reduce turnover is to be proactive. You don't want to be hearing about issues for the first time in an exit conversation. Take the time to listen to the challenges and struggles your teams and customers are having. Then, try to create action plans for how you can relieve or mitigate stressors. 

It's critical to be proactive about potential issues with customers and teams so you can alleviate problems before they begin. 

Being proactive in this case means having open lines of communication and regular conversations to determine where people are. Look for themes in language and behavior to help you predict what similar groups may need.

Step #2: Make data-informed decisions

When you see a high employee turnover or attrition rate, it's critical to look at the data. What kinds of numbers are you seeing? What do those numbers indicate? Is there a lack of engagement? If so, why? 

Are people having difficulty connecting to the product, are they overwhelmed with information, are they siloed in any way, left to work independently with little accountability or interaction? 

Take the trends you see in the data back to the key stakeholders in those areas and departments and start to have conversations like, how can we add value here while removing roadblocks? How can we break down specific barriers to access, and how can we combat fatigue?

Step #3: Focus on communication

Communication is a vital aspect of building and maintaining trust. Regular communication increases trust and will open up the door for people to tell you when they begin to feel discomfort or see a kink in the system. That way, you're not just reaching out when there's an issue.

This open dialogue will give you more information than formal structures and help you create human-focused solutions. Increasing touch points and regularly communicating with your team members can make a world of difference in these relationships.

Step #4: Retain talent with learning

The second biggest reason companies are hemorrhaging top talent is lack of growth. Team members are no longer willing to stay for the long haul if they don't see what's in it for them.

One of the most important ways you can help your teams grow and develop through their time at your company is through enterprise learning. A robust enterprise learning strategy will not only make your teams more valuable to you, but it will also make your company more valuable to your teams. 

The more your team members feel like they're learning and growing at work, the more confidence they'll have in their abilities and the more likely they'll be to stay.

Keep Moving Forward

As with any other business metric, attrition rate is only a tiny part of the picture. There’s no right way to decrease attrition or any specific number to aim for. Every company is unique and will have unique goals.

The important thing is to keep moving forward—try to understand what’s causing the turnover. Then, do your best to minimize the impact of those causes. Give your employees good reasons to stay on. Monitor your attrition rate, and do what you can to decrease it.

Like anything else, it’s all a matter of continual positive momentum.

What challenges do you face when it comes to attrition? Have you been able to decrease your attrition rate, or is turnover a concern for your company?