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Unpacking the Attrition Rate and Why It Matters

14 Apr 2021

It’s a common business trope to say that “our people are our greatest asset” and while it may sound trite to some, it could not be more true.  Regardless of what industry you’re in, the ability to recruit and retain top talent is one of the most important components of growing a thriving business.  However, in many cases, a business will focus all of their attention on the recruitment part of the process and not as much effort on the retention rate of those employees once you’ve brought them into the organization.

That’s why it’s important to understand your employee attrition rate and how it impacts your business.  It might even be the most important human resources metric to keep an eye on.

What is the Attrition Rate?

Simply put, the attrition rate (also known as churn rate)definition refers to the percentage of your staff that leave your organization over a specified period of time.  It’s a simple calculation where you take the number of people (team members) that have left the business and divide it by the average number of employees over that same period.

In most cases, you’re hoping that your attrition rate is as low as possible because that shows that your employees are happy and that they buy into the vision of the company. A high attrition rate on the other hand indicates issues within the work environment and company culture. When the rate of attrition starts to rise, it can be a sign of something going wrong internally.  All that being said, be wary of oversimplifying things here because there are a number of things that can influence the attrition rate, so you have to do the work to identify what are the major contributing factors in order to make any sense of the figure itself.

What Influences your Attrition Rate?

There are a number of different things that can influence whether you have a higher attrition rate or lower. Some of the more common factors include:

  • Voluntary resignations. This is the most common understanding of attrition – employees who choose to leave the organization for their own reasons. They might be unhappy in their role, or not aligned to the company vision, or they may just have been offered a better role somewhere else. Each case is going to be different here and so you’ll need to use your exit interview carefully to identify what the reasons are for each person, so you can look for larger trends if any.
  • Sometimes, as a business, you will need to fire employees for various reasons, and this will also play into your company's attrition rate. This step should always be a last resort after trying various other means of reconciliation, but sometimes – it just needs to be done.
  • As a business grows and technology advances, you’re likely to see certain tasks and roles lose their relevancy over time. This is especially pertinent in modern times as automation of all types threatens many of the jobs currently out there in the market. When an employee becomes redundant and they are either moved internally or the bottom line leaves the company altogether, that will affect the attrition rate.
  • At a certain age, employees will go into retirement and leave for that reason. As such, depending on the demographics of your company, this might be a key factor that influences your attrition rate.
  • Rapid Growth. On the other side of the equation, it’s worth noting that if you’re rapidly hiring new employees, it can make the attrition rate look better than compared to previous periods because you have more employees on board. So, be sure to be careful as to how you measure it so you’re comparing apples with apples when having new hires

So, if those are the factors – what can you do about it as an organization?

How to Improve Your Attrition Rate?

The only sustainable way to reduce your annual attrition rate is to improve the working conditions for your employees to keep them satisfied.  In the short term, you might find success in throwing money at the problem, but over a long time period, employees are going to stay because they enjoy working there and because they believe in what the company is trying to achieve.

  • Employees need to feel like they are part of something that is bigger than themselves. The mission is what increases employee engagement as well as employee retention since it helps employees bond and gives them the motivation to push through times when work is difficult, long, or uninspiring. One of the best ways to retain top talent is to continually be communicating this mission and how each person’s job is contributing to the greater good.
  • Responsive to Feedback. As a company, you should be taking the feedback of your employees seriously and acting where needed. Employee satisfaction is crucial within the business journey since if an employee feels like they aren’t being heard, they can feel stuck and are more likely to want to leave. By listening to your employees and doing whatever you can to make their working conditions as pleasant as possible, you can keep your attrition rate low. With flair's performance review feature, you and your team will be able to exchange feedback much easier.
  • Employees want their reward (monetary or otherwise) to be tied to their efforts so that they can see the benefits of working hard and so that there is alignment. When this isn’t the case, and remuneration feels arbitrary, then employees are more likely to look for other options.
  • No one wants to do the same thing day after day without novelty. The more variety you can inject into your workplace, the lower your attrition rate will be. Just by breaking things up every now and then with something fun to keep morale high, you can stave off the monotony that can creep into work if you’re not careful.

Those are just some examples of what you can do to keep employees satisfied – but all of this needs to be informed by real data that you’re collecting from those employees who are leaving.  As such, it’s very important that you run a proper exit interview with each employee who is on the way out to ascertain why they are leaving and whether that points to other things within your organization that can be improved.

It Can Make All the Difference

If you can get a handle on some of the principles above and create a working environment that employees love to be a part of, you’ll ensure a low attrition rate and give your business the best possible chance to reach the lofty heights you’re dreaming of.

It might just be the secret weapon that takes your company to the next level!

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