Attrition rate is a metric that helps companies identify ways to retain productive employees and loyal customers. Learning to calculate attrition rate can help businesses keep track of average employment duration as well as the costs of recruitment and training, maintaining a customer base and marketing. An attrition rate can be calculated monthly, quarterly or annually to monitor progress.
What Is Attrition Rate?
Attrition rate is a metric used to calculate the rate at which employees or customers have voluntarily left a company. The rate of attrition is calculated in proportion to the total employee count in the organisation. Human resources uses this rate to calculate the number of vacant positions so that they can make plans to hire accordingly. A similar rate can also be used to calculate the number of customers who have shifted loyalties from one brand to another. Marketing teams use this data to plan new strategies for retaining customers.
What Is Employee Attrition Rate?
The employee attrition rate is the percentage of employees who leave a company in a specific period. It could be monthly, quarterly or annually. The cause for leaving the company could be retirement, illness, better job opportunities or personal reasons. The attrition rate helps you to understand the rate of permanent or semipermanent loss of employees, which can impact a business. The employee attrition rate is also referred to as the churn rate.
What Is Customer Attrition Rate?
Customer loyalty is a key factor in building a brand and a business’s credibility. The customer attrition rate is a metric that measures whether a company can keep its customer base.The metric helps to assess whether a customer is continuing to use or has stopped using a specific business’s goods and services. Although this can be a challenging metric to measure for certain industries, with the right analytical tools, many businesses are able to get the information they need. For example, measuring customer attrition rate in a supermarket may require more participation in a loyalty program, whereas, in an auto dealership, you can tie a single customer to a few products they may have purchased.
Causes Of Attrition
Employees leave their place of employment for a variety of reasons. Entry-level employees, for example, may a company for new work opportunities, better pay or academic pursuits. Upper-level employees might leave for reasons such as finding a better work-life balance, too much work-related pressure or stress or a career change. Some of the most common causes of employee attrition are:
- Relocation
- Medical emergencies
- Family requirements
- Retirement
- Termination
- Reorganisation
- Transfers
- Downsizing
- Layoff
some common causes of customer attrition are:
- Poor quality of product or service
- Higher comparative costs
- Lack of service availability
- Poor after-sale customer service
- Limited or poor accessibility
- Loss of brand value and image
How To Calculate Attrition Rate
To calculate the rate of attrition, collect the following information:
- Time or duration for which you want to calculate the rate of attrition-monthly, quarterly or annually
- Number of employees at the start of the period
- Number of employees who left during the period
- Number of new hires for the period
For example, consider that you are calculating the annual attrition rate for a company that has 200 employees at the beginning of the year.Over the course of the year, 18 employees leave and 10 employees are hired. The steps to calculate the attrition rate for the year are to first subtract the number of employees who left from the number of new hires to arrive:
200 – 18 = 182
182 + 10 = 192Then, add the number of employees at the start of the period to the total:
200 + 192 = 392Next, divide the total by two to get your employee average:
392 / 2 = 196The next step in calculating the attraction rate is to divide the number of employees who left by the employee average to arrive at a decimal:
18 / 196 = 0.0918
Finally, multiply the decimal by 100 to get the rate of attrition as a percentage:
0.0918 x 100 = 9.18%
Advantages Of Understanding Attrition Rate
Helps in hiring decisions- Knowing the attrition rate can help managers improve hiring decisions, as they have data about employees’ reasons for leaving. This can result in a better recruitment process and also help them create benefits packages that may deter people from leaving the company. Hiring employees who will stay with a company long term can have a positive impact on the morale and operations of the business.
Helps in cost reduction- The costs of hiring new employees can be high. Once you know the attrition rate, you may have a better understanding of how many new employees you need to hire within a certain time frame. If a company can perform with little disruption, it can increase productivity. Having the appropriate number of employees can reduce stress and the need for existing employees to work overtime, which can have a positive effect on their desire to continue working.
Helps improve productivity- Constantly training new employees can take up valuable time and effort. It can also affect the morale of the other employees and result in low productivity. If you know the attrition rate at your company, you can prepare strategies and steps to avoid such situations.
FAQs
What is attrition rate?
Attrition rate refers to the rate at which employees leave a company over a certain period of time, usually expressed as a percentage of the total workforce. It is a measure of employee turnover and can indicate factors such as job satisfaction, workplace culture, and recruitment effectiveness.
Why is attrition rate important?
- Cost implications: High attrition rates can be costly for companies due to expenses associated with recruiting, hiring, and training new employees.
- Impact on productivity: Frequent turnover can disrupt workflow and decrease productivity as new employees need time to get up to speed.
- Employee morale: High attrition rates can negatively impact morale among remaining employees, leading to decreased job satisfaction and engagement.
- Talent retention: Monitoring attrition rates can help companies identify areas for improvement in talent management and retention strategies.
- Reputation: Excessive turnover can damage a company’s reputation as an employer of choice, making it harder to attract top talent in the future.
What are the common causes of high attrition rates?
Several factors can contribute to high attrition rates, including:
- Poor workplace culture or environment
- Inadequate compensation and benefits
- Lack of opportunities for career growth and development
- Limited work-life balance
- Ineffective management or leadership
- Job dissatisfaction or mismatch between employee skills and job requirements
- Better opportunities elsewhere, such as higher salaries or more attractive benefits packages offered by competitors.
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