What Is Attrition Rate?
What Is an Attrition Rate?
'Attrition rate' is a term that describes the rate a workforce or customer base decreases but is not replaced.
Attrition rate is a success metric often shown as a percentage that describes to what extent the workforce or the customers have decreased in comparison to the total number.
It is different from the turnover rate, which describes how workers leave their positions and are replaced.
In the workforce, attrition can occur when employees retire or resign and are not replaced. Customer base attrition happens when customers age out or move on but are not replaced with new customers.
Learning how to calculate attrition rates in both the workforce and among customers can help businesses keep track of performance, hiring costs, the number of customers and profits.
Why Is Attrition Rate Important?
Attrition rates can be calculated on a monthly, quarterly or annual basis and can be used by HR to determine the number of vacant or eliminated positions.
High employee attrition rates can be positive. For example, it can save salary costs by removing unnecessary positions and improving the workforce when low-performing employees either leave voluntarily or are dismissed.
High employee attrition rates can also be negative if top performers become demotivated and desire to leave.
This can be symptomatic of problems in the organisation, or that the work of former employees has been transferred to other employees as opposed to being replaced.
With customers, a high attrition rate is almost always negative. Businesses require customers to generate profit.
Attrition Rate for Employees
The attrition rate for a workforce will inform HR and the business about the quality of staff work.
Employees leave the organisation either voluntarily and involuntarily; however, the crucial metric that attrition rate monitors is if they are replaced or not.
Types of Employee Attrition
There are several types of employee attrition, often referred to as a 'churn’ rate:
- Voluntary attrition – Resignation or retirement
- Involuntary attrition – When employees are fired or made to leave when a role becomes no longer needed
- Internal attrition – Employees moving internally
- External attrition – Employees leaving for another role at a different company, better pay or shorter commute
Ascertaining the motivation behind employee retirement is an important part of this metric.
Common Causes of Employee Attrition
These can include:
When there are strong training programs in place, employees tend to feel confident.
However, if training is not up to scratch or rushed, then employees are likely to leave.
This is a factor in high-turnover roles such as call centres or similar.
There is a saying: ‘Employees don’t leave companies, they leave bad managers'.
Poor management and leadership can include lack of feedback or recognition, micromanagement and lack of trust.
Bad leadership can result in an unmotivated workforce that does not reach its potential. Employees look for work elsewhere, therefore.
If the management team do not encourage good performance, then business revenue will be affected, as will the attrition rate of the workforce.
Lack of Advancement/Growth
If there is no opportunity for internal movement and growth in a position, the risk of external attrition increases.
Employees who feel that there is no advancement in their position are likely to resign in favour of progressive employment opportunities.
Similarly, employees that feel they do not receive an appropriate salary or benefits for their role could also resign.
Employees want to feel adequately recompensed for the work they have completed and that they have the support to develop and grow.
It can also be problematic if the job description does not match either the skills required or the environment in the workplace.
Unmet expectations are troublesome for employees and for the company itself.
Attrition Rate for Customers and Clients
Customer experience affects customer attrition; therefore, it is in a company’s best interest to reduce the customer attrition rate.
Developing positive relationships with customers results in loyalty and retention; businesses must exceed or at least meet customer expectation.
How Does Customer Experience Impact Attrition?
If a customer does not have their expectations met, they will share their bad experiences through word of mouth or write bad reviews online.
They might move on to other suppliers and apply brand loyalty there, causing a loss of revenue and future problems securing new customers.
Regular opportunities to receive feedback from customers and clients helps businesses to determine the cause of high attrition rates and initiate positive changes that might be required.