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.

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