What Is Attrition Rate And How To Calculate It

No wonder a company’s success is highly dependent on its workforce. Work needs people, and people need work. As simple as it may sound, there’s an intricate relationship between people (employees) and work (the organisation at large), and a deep understanding of the nitty-gritty surrounding such a relationship is quintessential for effective human resource strategy and the overall performance and growth prospect of the company in a rather competitive labour market. One such metric widely used to gauge workforce data is the employee attrition rate.

This article aims to keep you well-versed with attrition and related concepts and how they together impact an organisation.

What Is Attrition Rate?

The attrition rate, also known as the Churn rate, is the measurement used to see how many customers or employees leave a company or an organisation. One of the purposes of calculating the attrition rate is for hiring managers to see how many open positions are available. The calculation of this rate includes taking into account how many customers/employees have exited the company, which is then divided by the total number of customers/employees within a specific time period.

What is an Employee Attrition Rate?

In its simplest terms, an employee attrition rate is the rate at which an employee leaves an organisation (say, a corporate), thus creating a vacancy in the strength of the workforce. It is also often termed a ‘churn rate’. It directly reflects on the number of employees who leave a company during a particular period and indirectly reflects on how many employees stay.

What Is Customer Attrition Rate?

Customer churn rate is a standard of measurement used by companies to see if they can retain their customer. To calculate this, companies take a specific period of time and then divide the number of customers they had at the beginning of that time period by the number of customers they still have at the end of the same time frame. This metric also helps the company analyse how many customers have stopped or continue using a specific service or product.

Also Read: How Do You Handle Stress And Pressure

causes of attrition rate?

Several factors are at play when it comes to employees leaving a company:

Wage

Salary is the most deciding factor in the labour market; more often than not, employees won’t stick with a low-paying job. Most times, people change their workplace for better/fair wages, especially among freshers. Difficulty in pay raises can also push employees to resign.

Room for Personal Growth

Universally nobody thrives in a monotonous work environment, and a hierarchical organisational structure often leaves no room for one to climb the promotional ladder. Another reason is that the company often doesn’t emphasise capacity building for upskilling. A survey suggests that 90% of employees would stay if the company just gave room for upskilling, coupled with promotions.

Work Culture

Human resource not only looks into the strength of employees but gives equal importance to the work culture itself. Negative work culture is one of the strongest deciding factors of attrition. For instance, sexual harassment, toxic employee competition, working overtime, gossiping etc.

Work-related Stress

Balancing our professional life with our personal life is not an easy task. Employees experiencing occupational stress is a large-scale push factor for people to change their

jobs. E.g. Marital issues, alcoholism, health problems etc., coupled with a heavy workload.

Recognition

Due to the rigid hierarchical nature of most organisations, employees at the lower strata often feel unappreciated for their “low-cost, high-impact activities”. This can seriously affect employees’ morale and motivation to continue working for the company.

How to calculate an Employee Attrition Rate?

To calculate an employee attrition rate, one must first collate the following set of data:-

A particular period within which the movement of employees is to be calculated. It can be monthly, quarterly or yearly.
An average number of employees within the said period.
An absolute number of employees have left the organisation within the said period.

Using the following formula, we can easily calculate our employee attrition rate expressed in percentages.

Employee Attrition Rate = No. Of employees leaving ÷ Average no. of employees × 100

Advantages Of Understanding Attrition Rate

Calculating attrition rate has many advantages, such as:

Finding out why employees leave

It can help the company in understanding the reasons that employees are leaving their company. The reasons range from work environment to pay or benefits to job satisfaction, among others.

Improvement in hiring process

Once the company possesses the data containing the reasons employees leave the company, it helps them in their hiring process. It can help them understand which area they need to improve to hire good employees and retain their existing ones. For instance, if one of the reasons employees are leaving their company, they can consider improving in that area.

Cost effective

The company can determine how many employees they need to hire at a time using the churn rate. This will help them employ just the right number of people required for the time being, which will further help them save their hiring budget. Moreover, it can help them save their time, energy and money as they will not have to spend too much time training new joiners.

Enhancing overall productivity

When the company hires just the number of employees they need, it gives them more time to focus on other responsibilities rather than spending time constantly training new joinees. Moreover, hiring the right amount of people prevents existing employees from working overtime and experiencing burnout. This will improve their productivity and job satisfaction.

What Is A Good Attrition Rate?

It’s hard to give a specific number as a good churn rate differs depending on the type and size of the company as well as the circumstances of the industry (for example, peak season for hospitality and tourism). However, companies should try to maintain an attrition rate not lower than 10%.

The best way to determine a good attrition rate for your company is to focus on the numbers during a specific period, like 1-2 years or quarterly. You can then compare this with the previous data of the same time period.

Average attrition rate

An average attrition rate may be about 10%. One should note that the attrition rate in the organization can even vary from department to department. Companies should take steps before the attrition rate turns higher and impacts the performance of the organization. Understanding the attrition rate will help you understand what steps you need to take for the betterment of your organization and lower the churn rate.

Low attrition rate

A low attrition rate implies that the employees stay in the organization long. It can indicate that the company has a better chance of retaining its employees. The low employee attrition rate can significantly impact the operations and sales of the business. Organizations should conduct employee engagement and training programs and provide employees with good salary packages to retain them.

High attrition rate

A high Churn rate occurs when the employees are unsatisfied with their work roles. Lack of compensation, exceeding workload pressure, management issues, and overtime are some of the common reasons why employees often look for a switch. If the company has a high attrition rate, it may even impact the organisation’s reputation. Management should take this as a sign and listen to the needs of their employees. If there is a need for overtime to meet deadlines, the management should consider offering the employees paid benefits, hosting events or offering incentives to keep them engaged and satisfied.