How Is Attrition Rate Calculated?

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 take a look at what attrition rate is, why it’s important, and how to calculate it. We’ll talk a bit about what might cause high attrition rates, too.

What Does “Attrition Rate” Mean?

Before we get into the calculations, let’s talk about the definition of attrition rate. In a general sense, attrition rate is the number of people who move out of a group over time.

In business, attrition rate is a measure of employee turnover, and helps you understand how well you’re retaining your talent.

A high attrition rate means that your employees are leaving frequently, while a low rate indicates that you’re keeping your employees for longer periods of time.

Why Attrition Rate Is Important

Understanding your attrition rate gives you important insight into your company. If your employee attrition rate is high, for example, it might mean that you’re not providing enough benefits to keep your talented employees from seeking out higher pay or a better benefits package.

This is cause 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 lots of 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. What’s considered to be a high rate in one industry might be very low in another. But you should always aim 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: just divide the number of people who left your company by the average number of employees over a specific period of time.

Let’s say you started the year with 50 employees, and ended the year with 65. And over the course of the year, 13 employees left. Here’s how we’d calculate the attrition rate for this situation:

 

Annual attrition rate = 13 / ((50+65) / 2)

= 13 / 57.5

= 22.6%

 

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.

Why?

Attrition Trends Are More Important Than Attrition Rates

Having an idea of your attrition rate, is important. But even more important is understanding the trends underlying those rates.

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. Monthly and quarterly attrition rates should be tracked, 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.

 

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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 a cost of $30,000 to $45,000 to recruit, hire, and train a replacement.

Even employees that occupy lower skill tiers are expensive to replace. 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 turnover at your company.

Here are a few things to consider:

  1. Stress

Employees that are highly stressed are more likely to quit their jobs. A 2013 study showed that job stress has a negative impact performance and a positive correlation with the intention to leave the company.

And TinyPulse found in 2015 that 70% of surveyed employees felt overwhelmed by their workload. 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.

  1. 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 10% 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 in an effort 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.

  1. Appreciation

Feeling appreciated is very important to employees, yet employers routinely overlook this fact. In 2016, Gallup found that only one in three workers felt that they’d received adequate recognition in the past week. They also called employee recognition a “low-cost, high-impact activity.”

The Aberdeen Group’s 2013 report on employee recognition contains a number of eye-opening statistics. For example, 60% of best-in-class organizations stated that employee recognition was a powerful motivator. These companies understand and leverage appreciation to create a positive environment that’s conducive to retention.

Putting an employee recognition program in place is great, but you can start small. Have meetings with your employees and let them know what they’re doing well. Recognize important accomplishments and let employees know you appreciate them.

  1. Room for advancement

No one wants to feel like they’re stuck in their current job forever. If your employees don’t feel like they can move up to a higher position or a different set of responsibilities, they’re going to be looking for employers that will provide them.

This factor can be almost as important as being paid a fair salary. A surprising number of employees say that they’ll need to leave their job to advance their career.

Offering advancement opportunities is an easy way to counteract this turnover driver. 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.

  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.

It begins even before that, though, with hiring employees that fit with your company’s culture. Company culture is a huge topic in itself, 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.

How to Decrease Attrition Rate

Decreasing attrition rate begins with understanding the drivers of attrition. As we saw above, there are many factors that can contribute to employee turnover, and each company has a unique combination.

The best and easiest way to find out what’s causing employees to leave your company is simple: ask them. Exit interviews are a crucial part of off-boarding, and can give you a great deal of insight into why you’re having trouble retaining your best employees.

Harvard Business Review’s guide to exit interviews contains lots of useful advice on how to get the most out of the sometimes-difficult process. But as you’ll see, the information you get can directly inform your retention strategies.

If you don’t know why employees are leaving, you won’t know how to get them to stay, either.

Of course, you don’t need to wait for an employee to leave the company to find out how you can decrease your attrition rate. Talk to your employees, ask them what you’re doing well and what you can improve on. Be open to feedback and criticism.

 

Keep Moving Forward

As with any other business metric, attrition rate is only a small 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 turnover. 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?

Dann is a long-time freelance writer with a passion for doing more with less. He writes about productivity and efficiency for businesses of all sizes.