by Court Cano | Feb 9, 2022
What is churn rate?
A company’s churn rate is the rate at which employees leave the organization. This includes both turnover and attrition. All of these terms refer to the number of employees who leave the organization during a specified period of time, generally a year. (Note that the term ‘churn’ used generically can also apply to customers.)
Churn, attrition and turnover: how do they differ?
Attrition is a measurement of the reduction of staff during a set period of time. Most companies measure it annually. Attrition encompasses all reasons for separation including resignation, termination or retirement. If an employee is replaced, the separation is not included in the rate of attrition.
Turnover is a measurement of the reduction in workforce when separated employees are replaced by new hires.
The Importance of Employee Churn Rate
Because employee churn rate can impact productivity, business performance, and growth, employers need to monitor the rate.
In what ways does a high churn rate affect an organization?
A high churn rate affects an organization in many ways. First, it can cripple a company financially because costs for recruiting, hiring, and training are significant. The Society for Human Resource Management (SHRM) places the cost to replace a worker at six to nine months of the annual salary for the position. A company with a high churn rate will spend between $17,500 to $26,250 replacing an employee who makes $35,000 annually. Employers who lower their churn rate can save money on hiring and related costs which can increase their profit margin.
Second, a high churn rate can lead to a lack of experience in the workforce. This puts a burden on employees with more skills and experience, who may grow to resent shouldering the bulk of the workload. If it leads to experienced employees quitting, it can trigger a downward spiral that is hard to reverse.
Thirdly, a high churn rate damages the company’s reputation, which in turn can dissuade customers and investors as well as making it harder to attract new employees.
However, in some scenarios companies can use attrition to their advantage. If an organization wants to lower costs, they may postpone filling open positions. An employer can leave a position unfilled when an employee quits, retires, or is terminated. This is sometimes referred to as a hiring freeze and is common during widespread economic crises or industry-specific downturns.
Steps Employers Can Take to Lower Their Churn Rate
Churn rate is an important metric for employers to compare to their competitors in the same industry and labor market. Employers who identify an increase in their churn rate can take steps to address the issue. These include using a structured onboarding process, making sure the company’s benefits package is competitive, improving management practices, providing flexible schedules and supporting employee work/life balance in other ways, conducting exit interviews to determine why employees are quitting, and providing professional development programs so employees can progress along a career path in the organization.
Employee retention, a vital aspect of business management, involves strategies to keep employees motivated and focused on their work so they elect to remain employed and fully productive for the benefit of the organization. A comprehensive employee retention plan can play a vital role in both attracting and retaining key employees, as well as in reducing turnover and its related costs. All of these contribute to an organization’s productivity and overall business performance. The Society of Human Resource Management
HRMS software can help employers and HR teams analyze employee retention, as well as the effectiveness of programs designed to improve retention.
See also
Additional resources
by Court Cano | Feb 9, 2022
How can employers improve employee retention?
Employee retention is a business stability measurement. It is calculated by totaling the number of people employed at each point in time, then dividing that number by the total number of employees at the start of the period. In other words, it shows what percentage of employees are still there at a later date. Retention can be improved by better understanding employee motivations, giving feedback and ensuring employee engagement.
Importance of Employee Retention
The Bureau of Labor Statistics (BLS) reports that 3.6 million employees quit last year, the highest number since 2009 when the figure hit 3.7 million. Three out of four employees quit because of workplace conditions. Gallup calculates the cost of voluntary turnover to US businesses at one trillion dollars every year. Companies that retain employees also sustain their knowledge and culture.
Factors that affect employee retention
Factors that lead to loyal and productive employees:
- Fairness— employees should feel that they are being assessed fairly, without favoritism. Advancement and acknowledgement should come from merit and success rather than favoritism.
- Encouragement—employees are encouraged, trained and supported in their work rather than threatened with punishment or other negative consequences.
- Leadership— managers lead employees and teams in a supportive, cooperative manner, providing enough information, structure, and direction without micromanaging.
- Effective communication— employees are given enough information to make informed decisions and participate effectively in meetings.
- Coaching— a culture of learning, skills development, and mentoring provides employees with the feedback they need to grow as professionals. This environment also encourages employers to achieve their goals by providing their employees with the necessary tools.
- Recognition— Companies with a reputation for recognizing contributions and successes tend to retain employees better than those that do not.
What are stay interviews?
The stay interview is a tool you can use with your human resources director to determine the reasons why employees leave, improve general overall business effectiveness, and measure employee satisfaction with immediate supervisors. The information gathered from stay interviews can be used to help improve employee retention rates in your company.
What can I do to improve employee retention?
- Engage your employees to motivate your employees to drive consistent performance and resolve issues that impact morale, teamwork, and productivity.
- Coach employees to connect and collaborate, which helps them grow as individuals and promotes desired behaviors and outcomes.
- Upskill employees so that they are encouraged to develop their skills and their contributions increase.
- Flexible Scheduling can benefit your business by increasing attendance, boosting predictability, and supporting work/life balance.
- Remote Work options can be helpful in increasing flexibility, improving safety, and reducing costs.
- Offer benefits that will attract and retain the best employees.
- Manage performance as a process that provides ongoing feedback and opportunities to course correct.
See also
Additional resources
Human Resources Techniques that Improve Communication and Help You Keep Your Best Employees
The Good, Bad, and Ugly: Management Effect on Employee Retention
How Workforce Management for Manufacturing Increases Employee Retention
Proven Strategies from Successful Businesses to Keep Your Employees from Quitting
by Court Cano | Feb 9, 2022
What is attrition?
When a company’s workforce is reduced during a specific period—usually one year—it is known as attrition. Attrition includes all separations from the organization, including resignations, terminations and retirements. If a person is replaced, the separation does not count toward the attrition rate.
Why is employee attrition important?
Employee attrition is a key metric in Human Resources. A high rate of employee turnover is expensive for a business, because the costs for recruiting, hiring and training replacements are typically tied to the rate. Employers who reduce their rate can save money on labor costs and increase the profit margin.
What causes the attrition rate to increase?
A high turnover rate could be due to low engagement, poor management, or inadequate compensation and benefits. It could also indicate that competing employers are more attractive in the labor market.
Is attrition the same as turnover?
Employee attrition refers to the voluntary or involuntary departure of employees from an organization, while employee turnover is a measure of the rate at which employees are replaced by new hires.
For employers, it is important to compare the rate of employee turnover within their industry. Employers who see an increase may be able to enact programs to reduce employee turnover, which will in turn increase their profit margin.
How can a company increase employee engagement to improve retention?
To create an employee engagement program, you should follow these three steps:
1. Map the employee journey
The employee journey is everything that happens from the moment a job candidate applies for a position to the day he or she leaves. A thousand little things–from initial application to post-employment follow up–combine to create a positive or negative experience.
By mapping the employee journey, you can determine where your company falls on the spectrum of engagement. Of course, the journey isn’t the same for every employee. The employee’s manager, department, and team influence it. Improving the employee journey is the first priority when it comes to engaging employees.
2. Conduct ‘stay’ interviews
‘Stay’ interviews help you to identify weak points in the employee journey. These interviews are most effective when conducted by someone in HR, who can ask questions that will encourage employees to be candid about their relationship with their manager.
3. Automate HR to remove obstacles to engagement
Automating HR processes can improve employee engagement. Employees are constantly performing administrative transactions—punching in, turning in timecards, and receiving a paycheck. They request shift trades and vacation time and enroll in a health plan and use their benefits. An integrated HR system streamlines these processes for employees by providing transparency about HR-related information and allowing them to perform transactions themselves.
HRMS (Human Resources Management Systems) can be used to track both attrition and turnover, as well as efforts to reduce them.
See also
Additional Resources
