What Is 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.
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.
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.
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.
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.
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.
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.
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.
There is such a wide range of businesses providing services that if an organisation does not meet or exceed customer expectations, those customers will go elsewhere.
Developing a good customer relationship means more than providing a service, for customers appreciate feeling important and that they matter.
Complaints happen, but customer service could make the difference between a customer leaving – and sharing that bad experience – and staying as a loyally retained client.
Good customer service, including dealing with complaints well, helps prevent high customer attrition rates.
If customers cannot buy from you, they might decide to buy from someone else.
Product availability is a common reason for customer attrition and another factor to consider.
If your products or services are not as good as those provided by other businesses, clients are likely to find better elsewhere.
Whether the products are faulty or don’t work as well, supplying less than perfect products is likely to cause customer attrition.
To understand the attrition rate of the workforce and employees, a simple calculation needs to be made.
There is, of course, software available to do this; however, understanding the calculation will help your business.
The customer attrition rate formula is simpler than that used for the workforce; however, it does not necessarily provide all the information.
For example, this formula does not consider customer retention (loyal clients) or customer acquisition (how many new customers have engaged).
However, it should clarify how customers are spending their money when all these factors are used.
The simple calculation requires:
- The number of customers during the initial period
- The number of customers that remain at the end
The difference between these numbers should be divided by the initial amount, then multiplied by 100 to find the attrition rate percentage.
If a business had 1,200 customers at the beginning of the quarter and 1,100 at the end, the difference is 100:
100/1,200 = 0.083 x 100 = 8.3%
This calculation formulates that the customer attrition rate in this quarter for this business is 8.3%.
To calculate the employee attrition rate, specific numbers are necessary.
The formula requires:
- The precise number of employees in the initial period
- The number of employees who left in the period
- The number of new hires that began during the period
Add the number of new hires and lost employees, and then remove from the number of employees at the beginning to get a total of the present number of employees.
Add the number of employees at the start to the number of employees at the end, then divide by two to find the average.
Divide the number of employees left by the average employee count to find the decimal rate of attrition, then multiply by 100 to find the percentage rate of attrition.
For example, if a company had 240 employees at the beginning of the quarter, with 12 leaving and 4 beginning throughout the period:
240 – 12 = 228
228 + 4 = 232
240 + 232 = 472
472/2 = 236
12/236 = 0.05 (decimal rate of attrition)
0.05 x 100 = 5% attrition rate
For a business, keeping track of the attrition rate of employees and customers can help ensure that the workforce remains productive and clients are happy, and will provide the data that might inform them if something needs to change for improvement.
Employee attrition can help businesses understand why their workforce is dwindling. Employee attrition can be positive when low-performing employees leave or when saving money in salary payments and benefits.
If high performers or a large amount of a specific demographic in the workplace are leaving, there might be cause for concern regarding the culture and management.
Regular communication with customers and welcoming feedback can help organisations to make the most of their customer attrition rate. Understanding how different customers feel about their shopping experience can help a company make the right decisions regarding improving relationships and customer service.
Monthly, quarterly or annual monitoring of customer and employee attrition rates should be part of the metrics used to measure performance in a business.