Employee Retention: How To Retain Employees For Small Businesses
Employee retention is a vital part of small business success. Learn strategies t...
Attrition rate is one of those numbers that many managers avoid, often because they’re not familiar with it or what it means for their business. But this variable can provide valuable insight into the inner workings of your company and help you streamline the way your team operates.
In this article, we discuss attrition rate in all its glory and provide a step-by-step guide to crunching the numbers for yourself.
The general definition of attrition rate is:
The number of things that move out of a larger group over a specific period of time.
With that concept in mind, you can apply attrition to everything from inventory to team task management. Most often, though, businesses use attrition to examine a very important variable: employee turnover.
From this perspective, then, your business’s attrition (or churn) is:
The number of employees who leave your company over a specific period of time.
This metric is most often calculated as a percentage of the number of employees who left versus the total number of employees you started with. We’ll get into that in a bit more detail in the Attrition Rate: Calculation section below.
But first, let’s discuss the benefits to your business of calculating your employee attrition rate.
At first glance, your company’s attrition rate may seem like a bad thing (it is a calculation of employees who leave, after all). But consider this: Some attrition may actually help your business reduce costs.
This occurs when long-time employees — who you pay more than newer employees doing the same job — leave to work for a different company or simply retire.
Even if you hire a new employee to take their place (likely for less pay), your business will see a reduction in labor costs and an improved bottom line.
Attrition also allows you to bring in new talent. When you refresh the talent pool in this way, you also introduce novel ideas, innovation, and progress into your team.
In some cases, attrition of one form or the other can improve the overall performance of your team.
Some departures may have been employees who were pulling the rest of the team down (e.g., low-performers, complacent team members, or even disgruntled workers). “Trimming the fat,” so to speak, can have a wide range of positive effects across your entire company.
Company culture is the behavior within your organization and the meaning that people — both team members and customers alike — attach to that behavior.
Culture matters because it’s the “everyday life” of your team and your business as a whole. It’s the atmosphere and dynamic among coworkers, supervisors, and managers.
When your employees feel comfortable within your culture, they are more likely to enjoy their time at work, develop better relationships, and be more productive.
If, on the other hand, your employees don’t feel comfortable within your culture, they are far less likely to enjoy their time at work. As a result, their relationships and productivity will suffer. So, when those individuals leave, your company culture can actually grow stronger as a result.
Now that you understand what attrition rate is, let’s examine how to calculate this number for your business.
For the purposes of this exercise, we’ll set up a hypothetical company — JWS Co. — and plug their numbers into the most basic formula: the one used by the Bureau of Labor Statistics (BLS) to calculate the monthly and annual national percentages.
Note: The BLS uses “departures” (or “separations”) to refer to the total number of employees who have left or been fired.
Attrition Rate = (Number Of Departures / Annual Average Number Of Employees) x 100
Here’s how to use the formula to determine your employee churn for a given year.
This step is pretty straightforward:
In 2021, JWS Co. started the year with 37 employees, lost one in February (36), two in May (34), one in August (33), and one in December (32). Their annual average was:
(37+36+36+36+34+34+34+33+33+33+33+32) / 12 = 34.25 (we’ll round down to 34)
So, for 2021, JWS Co. had an average total of 34 employees.
For the purposes of this exercise, we’ll group all departures together into one number. If you want to calculate the attrition rate for voluntary turnover (employees who leave) or involuntary turnover (employees who are terminated), you can separate the data into those two categories.
In 2021, JWS Co. (our hypothetical business) lost eight employees total. That will be their number of departures.
Next, plug the two pieces of data into the attrition rate formula shown below:
Attrition Rate = (Number Of Departures / Annual Average Number Of Employees)
So, for JWS Co., here’s what the formula would look like:
Attrition Rate = (8 / 34)
Attrition Rate = 0.24
One more step to go!
Finally, multiply the decimal from step three by 100 to determine the final percentage. Again, here’s the complete formula the BLS uses:
Attrition Rate = (Number Of Departures / Annual Average Number Of Employees) X 100
We’ve already determined the data in the parentheses in step three (0.24), so it’s a simple matter of plugging that decimal into the equation and going from there.
Attrition Rate = (0.24) X 100
Attrition Rate = 24%
That tells JWS Co. that 24% of their workforce left (either voluntarily or involuntarily) during 2021. Armed with that data, they can then take steps to control and reduce future attrition.
Offering your employees a bit of flexibility here and there goes a long way toward keeping your attrition rate low. For example, trying an alternative to the standard 9-5 schedule — or at least being flexible about when hours are worked — has a direct impact on your business as a whole.
First, it helps your team members feel more in control of their own schedules. This provides more job satisfaction and increases employee happiness.
We’re not advising that you cut employee hours down to part-time so they don’t have to work 9 to 5. Rather, we’re suggesting that you try new ways to accumulate 40 hours each week.
Here are a few examples of flexible schedules that might work in your business:
The flex schedule is a wonderful incentive for your employees, but it is also a nightmare to schedule. That doesn’t mean you have to dismiss the idea completely.
Instead, incorporate a cloud-based employee management app, like Sling, to give you and your employees the ability and freedom to create the schedule that works for your business.
With Sling, employees can access the app anywhere, anytime from their phones, mobile devices, or desktop computers. They can request time off, find their own substitutes, tweak their schedules to fit their needs, and much more.
It also gives you, the manager, the ability to simplify payroll and track the hours your employees work without you physically being there. The power and flexibility that Sling offers make controlling — and lowering — attrition rate a very real option for businesses large and small.
For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit GetSling.com today.