Definition of Attrition
Attrition in business is the voluntary or involuntary loss of talent in any organization. It can be employee-initiated through:
What is Attrition in Business?
Employers may create attrition through the termination of employees, either for or without cause, by eliminating a position, or via layoffs or downsizing.
Employee- or employer-motivated talent reductions typically signal problems within an organization. Financial downturns may result in:
High attrition rates due to employee resignations may indicate an issue within the company that’s leading workers to seek other employment.
In some cases, when attrition occurs, an employer chooses not to refill the vacancy. If an employee retires or resigns, duties may be distributed to one or more positions within the department or organization. Overall headcount may be reduced, but productivity is not impacted.
What does attrition mean in business?
Every company experiences attrition in some form. Other terms for attrition include:
- Talent loss
The impact can mean:
- Loss of customers or revenue
- Stress on remaining workers
- Damages that result from potential claims or charges
The Bureau of Labor Statistics (BLS) estimates the average turnover in American companies is 18%. That means nearly one-fifth of any organization’s workforce will leave the company every year.
In some industries, the annual turnover is markedly higher:
- Healthcare experiences about 25% attrition
- In 2022, nearly 76% of retail workers switched roles
- According to BLS, the food service industry, particularly fast food or quick service restaurants, comes in at the highest attrition levels of 140%
It’s estimated the cost to replace a staff member begins at 1.5 times the worker’s salary and can go as high as 150% of their annual wages, depending on the position. But attrition has additional, hidden costs.
What do attrition rates signify?
When voluntary attrition rates are low, it may suggest high employee engagement and ownership in the organization. Depending on the type of work and industry, if your company is maintaining attrition rates around the national average, you’re doing well.
Attrition rates vary geographically — it’s easier for workers to find alternative employment in high-density urban areas. In rural areas, attrition rates may be low because there are fewer options for the workforce.
When voluntary attrition rates are high, there may be underlying problems. Employers should look within to determine what factors are driving high turnover. There may be:
- Problems with competing wages in the area
- Substandard policies
- Bad managers
The cost of losing staff, especially talented workers, is too high to ignore attrition rates. A best practice is frequently examining attrition within the organization at a company level and by each department.
If the company’s overall rate is low, but one or two areas see high turnover rates, it’s worth investigating what’s causing the churn in that sector.
Managing attrition rates
When voluntary attrition rates are high, examine the root cause for the loss of talent. There are many ways employers can determine what’s causing talent to move on. In most cases, some remedies can lower attrition and reduce turnover costs.
Other similar terms or phrases that can assist you
As the marketplace for talent shifts, wages are typically the top cause of employee resignations. It’s essential to keep current on the prevailing wages in your area. Ensuring you are offering competitive salaries may be crucial to retention when:
- The competition for talent is challenging
- Inflation is pressuring staff members to maintain balance
- Market conditions change
Look to local job boards periodically to determine what employees are being paid for similar positions in your area. Salary surveys should be routine in every organization, performed annually (at least) or every 3 to 6 months if the market is volatile where you do business.
You may need to make wage adjustments if you find you’re not keeping pace with the market. If this concept causes budget angst, consider the cost of modifying wages against the cost of recruiting, hiring, and training a new staff member.
Losing staff members because of lower-than-available wages will likely result in replacing those employees at a higher rate. Giving existing, trained, and vetted employees a salary bump to keep them on staff is a better option.
Conducting exit interviews is critical to understand attrition and attempting to combat it. When top talent leaves for reasons other than professional advancement or wages, exit interviews can uncover the cause. Often bad managers are the reason staff resigns, but employers can remedy this.
Bad managers drive attrition. One study found more than 80% of workers considered quitting their job because of a bad manager. Gallup revealed that half of the workers who left in 2021 did so because of their boss or to improve their lives.
For some exiting employees, discussing why they’re leaving is uncomfortable. They may not want to talk about their experience with an ineffective manager. The conversation can be difficult, but it’s essential to get to the real reason for the separation. Assure the employee their information will be confidential and will help the company make changes for the future.
Staff members may leave without notice — they simply ghost their job. This can indicate a significant problem on the job or with a manager. Be persistent in following up with these employees. There may be a compelling reason for their resignation that can be corrected if it’s revealed.
If you have a problematic manager driving attrition, immediately correct the behavior or skills deficiency causing problems. The supervisor may need training, correction, or reassignment. This may be particularly the case for new leaders. You may turn a once-bad manager into a great one that drives engagement and retention.
A counteroffer is another way to avoid attrition. When a staff member informs you they’re leaving for higher wages or benefits, it may be worthwhile to make a counteroffer.
Begin by asking the staff member if they’d consider a counteroffer. If they will, be frank and ask how much more in wages or benefits it would take for them to remain on your payroll. The amount may be surprising and well worth the effort.
Some counter offers are less cut-and-dried. The staff member may be:
- Moving to a remote work model, which is highly sought-after in today’s market
- Offered benefits, such as healthcare, rather than a higher salary
If you can, meet the perks the new company is offering.
Remember, turnover is costly. If you can retain a talented employee who’s trained and at peak productivity, the difference in salary, new perks, or benefits may be negligible. Consider the process, expense, and time involved with replacing that staff member:
- Will you be able to hire someone at their salary or benefit level?
- Can you wait months for a replacement?
- Is talent plentiful where you do business?
A counteroffer may be the solution to reduce attrition and boost employee engagement.
Making the right hire
Some attrition occurs in the early stages of employment — within weeks or months of the new hire. This may be due to a competitive market, or you may be making ineffective hiring decisions.
Ensuring your current job descriptions outline a position’s qualifications, duties, and responsibilities is the first step in making long-term, quality hires.
Honesty during the hiring process is another crucial component of your staffing plan. When an applicant knows precisely what the job entails and accepts an offer of employment, the chances of ‘buyer’s remorse’ decrease.
Poor hiring decisions are costly. Every job has drudge work — if the candidate knows what they’re agreeing to, they’re more likely to stay on as an employee when they encounter challenges.
Attrition is an expensive line item for businesses that can often be avoided. Reviewing turnover rates for the overall company and by every department can uncover whether your company is aligned with the market or has a problem. If there are issues, look for solutions that help retain talent and boost overall morale.