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What is Attrition Rate And How It Affects Business

Attrition rate is the rate at which employees are leaving a business, or attrition itself. It has been a significant determinant of success in businesses around the globe. Attrition rate and employee turnover rate are very closely related. But they have slight differences. While turnover just offers information on people who have left the business during a specific period, attrition also factors in employees who left earlier but were counted in that timespan.

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A higher attrition rate generally indicates tough conditions at work, below-average employee satisfaction, and other issues. Sometimes, lower employee retention rate can even put the survival of a business at risk if it happens to be in an adverse economic climate. You can use HRM Software to monitor the performance of your employees. Also, you can download and learn more about this software by downloading HashMicro pricing scheme calculations.

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Also Read: The Best Way to Reduce Employee Turnover

What Exactly is The Attrition Rate?

percentage animate An attrition rate is a metric that measures the number of employees or customers lost over time who are not replaced. The rate is a percentage of the total number of employees or customers. Human resources employees frequently use an attrition rate to calculate the number of open or eliminated positions. Customer attrition rate data could be useful for sales and marketing teams looking to fine-tune their strategies.

Employee attrition rate

An employee attrition rate, also called a “churn rate,” is the number of people who leave their jobs or retire without being replaced. Unlike a turnover rate, an attrition rate focuses on permanent/semipermanent employees and position loss and how it affects the company.

A company’s attrition rate can have both beneficial and bad effects. When an employee retires and the position is eliminated, the company can save money on staff. In most cases, however, the departing manager will transfer the employee’s tasks to the remaining team members, thus increasing their workload.

Customer attrition rate

Companies may also track the number of customers who stop buying from them. Finding and retaining loyal consumers is critical to the success of a business. Customer attrition is the rate at which customers stop purchasing a company’s goods or services.

Calculating the customer churn rate can take time and effort. Businesses like auto shops may be able to track which customers come back for vehicle maintenance and which don’t, but businesses like retail stores may have trouble telling which customers come back and which don’t. Unlike employee attrition, the loss of customers is rarely beneficial. So every business should strive to have a low rate of customer attrition.

What Causes of Attrition Rate?

infographic with cause text

Finding the root reason for attrition might help businesses boost employee engagement or appeal to more customers. Here are some of the most typical reasons for employee and customer attrition:

Employee attrition factors

The following are the main reasons for employee attrition:

      • Resignation
      • Promotion
      • Termination
      • Personal reasons
      • Retirement

Customer attrition factors

Attrition of customers occurs for the following reasons:

      • customer interactions
      • Consumer assistance
      • Products are accessible
      • Product problems

Why Does Attrition Rate Matter?

data visual Attrition Rate

The performance of your business may be negatively impacted by employee turnover. That is why it is critical to understand the current state of your attrition rate. The first effect might be seen in the hiring cost. According to some statistics, the cost of replacing highly-trained workers might range from 120% to over 200% of their annual income.

Unless there is a strict way of passing on information, institutional knowledge will leave the company. This is because it is nearly impossible to transfer all of the knowledge an employee has acquired over the years. This is true unless you have a process in place for planning the next level up.

Their resignation will also affect the people who work with them. As a result, team members often end themselves with much more to do than they currently have. Their resignation can lower morale, increase stress, burn out employees, and affect business performance.

When someone leaves a team, it changes how it works and can even affect the company’s employer brand and employee value proposition (EVP). For instance, when a company has a history of high turnover, recruiters frequently say that it is difficult to hire new employees.

What Factors Affect Attrition Rate?

It is vital to evaluate why employees are quitting to reduce employee turnover. This is one reason why many companies do exit interviews: employees are more likely, to be honest about what they disliked about the company. People frequently quit to get a promotion, a higher pay, or to join a company with a better career progression structure. This means that money is often a contributing factor. But there is also a saying, “People don’t leave jobs, they leave bosses.”

Having a good manager is crucial to employee satisfaction. However, employees do not leave their jobs simply because of their bosses; they also quit because of their roles and the value they find in their work. Employees are more likely to quit if a job’s responsibilities are not clear. Or if the job is made up of tasks that do not seem essential and if they don’t feel that what they do is meaningful.

However, a low attrition rate is not always good. Some companies with low attrition rates become stale over time since they don’t have enough new people with new ideas. In the same way, it can be difficult to get a challenging employee to quit a job.

If they are not a good cultural fit for the company or their role, it can affect productivity and morale throughout the company. If they leave, it might be a good thing. However, a high attrition rate is typically unfavorable.

Also Read: Things That Have a Big Impact On Employee Productiveness

Employee Attrition Types

types

Knowing the types of employee attrition might help you evaluate where you’re losing workers and if you need to boost engagement. The following are some examples of different types of employee attrition:

Voluntary

This type of attrition occurs when an employee voluntarily leaves the company. They may quit for personal reasons, such as caring for a family member. Another example of voluntary attrition is quitting a company to seek a higher-paying position elsewhere.

Involuntary

Involuntary attrition occurs when a company ends its employment. Businesses may eliminate roles to save employment expenses, or they may determine the position is no longer necessary. Commonly, companies cut costs by involuntary attrition.

External

This attrition happens when a worker quits and goes to work for a different company. They may quit taking a job that fits better with their career goals or to have a shorter commute.

Internal

When an employee moves to another position within the same company, this is called “internal attrition.” They may get a promotion or work in a different department.

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How to Calculate Attrition Rate

calculator with white background

Attrition rates are typically calculate by software applications. HRM Software is an online solution that is useful for processing data from all human resource operations in an organization or company. Along with this globalization era, HRD must be able to fulfil dynamic company needs. but understanding the formula for attrition can help you better understand the numbers and percentages involved. For a customer attrition rate, you may need to do more research and make estimates. 

The following is an example of determining an employee attrition rate:

  1. Begin with the number of employees at the beginning of the period.
  2. Count the number of employees who left during the period.
  3. Find out how many employees were hired during the time period.
  4. Add the number of employees who left with the number of new hires to get the total number of employees.
  5. Get the employee average by adding the beginning and ending numbers and dividing by two.
  6. To determine the decimal attrition rate, divide the employee average by the number of employees who left the company.
  7. Multiply the decimal by 100 to get the percentage attrition rate.

For example, a human resources generalist must determine the annual attrition rate. The company started the year with 100 employees and ten left during the year, while five were hired. Here is how the HR representative could find the annual attrition rate:

100 – 11 = 89

89 + 5  = 94

100 + 94 = 194

194 / 2 = 97

11 / 97 = 0.1134

0.1134 x 100 = 11.34% 

Regularly determining attrition rates can be useful for identifying trends. If you coordinate attrition rates with employee or customer surveys, you may discover correlations between the two that will benefit the business.

For instance, you may receive positive survey results from team members regarding a new flexible work hours policy. In the coming months, attrition rates will be lower than average. Based on the survey results and the attrition rate, you can conclude that the flexible working hours policy most likely helped retain more employees.

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Conclusion

After reading the definition, formula, and examples of attrition rate, you can now understand what attrition rate is. It is a ratio used to determine the number or percentage of people leaving a given business entity which might be an organization, department, or company. The equation and formula can be used along with other data to determine the causes behind it and whether or not it is viable for you to continue the business. 

If many people leave your workplace for unforeseeable reasons, there must be something wrong with your workplace that needs to be fixed. To pursue those challenges, you need an integrated system that can manage everything Human Resources needs. HashMicro is the right solution to help all those needs with the best HRM Software. To know better about this software, get HashMicro HRM Software by clicking here.

Interest in getting savvy tips for improving your business efficiency?

Muhamad Ardani
Muhamad Ardani
A content writer at HashMicro who writes various articles for the blog to engage customers with relevant information that is related to the company's needs.

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