How To Calculate Turnover Rate for a Healthier Business
Employee turnover is impossible to avoid altogether; however, learning how to calculate turnover rate and use those insights can help your business. Employees may leave jobs for several reasons, some of which could be out of the employer’s hands, such as an employee needing to move across the country or wanting to enter a different industry entirely. Such cases of turnover are normal, expected, and manageable.
However, there is a tipping point where turnover becomes abnormal, which can signal improvements that need to be made within the organization. That’s why it’s important for businesses of all sizes to calculate their turnover rate. Keeping close tabs on this data can help employers make tactical changes within their company to lessen turnover.
Why Calculate Turnover Rate?
Your employee turnover rate shows you, via a calculation, how many employees have exited your company in a specific period. Knowing the rate at which your employees are leaving, as well as what departments are experiencing more turnover than others, are crucial pieces of running a successful organization.
If a business fails to keep close tabs on its turnover rate, it could be costly. For one, replacing people is much more expensive than implementing different tools that allow them to thrive in their current job roles.
To replace an open role in a mid-level position, a company can expect to spend 20% of the resigned employee’s salary just to find their replacement. That doesn’t include the salary they will need to pay the new employee, either. For higher-level roles, like executive positions, employers can expect to spend over 200% of the resigned employee’s salary to find a suitable replacement. Wow!
In addition, when replacing a seasoned employee with a brand-new face, there are hurdles to overcome, particularly in roles that rely on employees producing revenue, such as sales positions. It can take new salespeople months to learn the ins and outs of your product and perfect their pitch delivery.
This means most new salespeople do not perform to their full potential until months down the road. In the meantime, goals and profits can suffer. This is true for roles outside of sales as well, as more technical positions, such as engineering or design, often have lengthy onboarding processes before employees can perform at their true potential.
All in all, the hiring process takes money, effort, and time away from your company. In any scenario, it’s always best to hang on to your current talent and put more resources into understanding your employee needs to mitigate turnover.
Having a deep understanding of your turnover, all starts with calculating your turnover rate. Keep reading to learn how to easily calculate this important metric.
How To Calculate Turnover Rate
Although math can be intimidating, the process for calculating turnover rate is quite simple. In just a few steps, you’ll have your turnover rate calculated and gain impactful insights about your business.
First, you need to focus on a specific period. Do you want to know how many people have left in the past 6 weeks or in the past 6 months? Make a decision about what period of time you want to assess, and then move to the next step.
Next, you’ll need to look at the numbers. This might take pulling up historical data about your company if you can’t produce these from memory.
You need to identify three numbers, which are:
- Number of employees who have exited the company during your specified timeframe.
- Number of active employees at the beginning of the timeframe.
- Number of active employees on the last day of the timeframe.
Once you have identified these numbers, you have everything you need to calculate the turnover rate!
To calculate your employee turnover rate, use the following steps:
- Find the average number of employees. You do this by taking the number of employees at the beginning of the period and at the end of the period, adding them together, and producing an average. This is your average employee count.
- Take your number of total departures (employees who left the company during the timeframe) and divide it by your average number of employees.
- Take the result and multiply it x100.
- Viola – you have calculated your employee turnover rate!
If formulas are more your style, a simple formula is available as well. The formula for finding your turnover rate is: Turnover Rate = (Total # of departures ÷ Average # of employees) x 100
This formula will provide you with a general idea of your turnover rate. However, you can get even more detailed using this formula in different ways. You can replace total departures with employee-initiated or employer-initiated departures only to see what percentage of your turnover is initiated by employees or by the company.
Using this modification, you can derive more meaning from your turnover rate. As an example, if your percentage of employee-initiated departures is significantly higher, it likely means your employees were lacking opportunities for development or seeking higher pay. With this information, you can begin to engage your current employees with questions on how and where to improve.
Conversely, a high percentage of company-initiated terminations signal different issues. Perhaps your company is hiring the wrong people for the wrong roles or needs to improve onboarding processes. These are internal conversations you will want to have with related departments, like HR and recruiting, to see where you can strengthen your candidate search and hiring processes.
To go into even more detail, you can complete the turnover rate calculation for only one specific department. To do this, simply replace the average number of employees of the entire company with the average number of employees in a specific department. Then, only use departures from that department to complete the calculation.
Zeroing in on certain departments that appear to have higher turnover than others is a must. Although your company’s turnover rate may be low overall, you may have an extremely high turnover in one small department. Even if it hasn’t affected the entire company at large yet, it’s important to get it under control before it does.
Strategies to Effectively Combat Employee Turnover
Learning how to calculate the turnover rate is only the first step in combatting turnover in your company. The data and insight it can provide are immensely valuable – but only if it is used to correct courses of action causing employee turnover in the first place. There are some key strategies you can use to combat turnover and fix issues within your organization.
Regularly Calculate Turnover Rate
We’ve already spoken at length about how useful an employee turnover calculation can be. However, it must be used effectively to pay dividends. If you are only calculating your employee turnover rate once a year, that may be too little. You won’t catch your turnover problem in time to stop it in its tracks, resulting in lost revenue over the course of the previous year.
Instead, calculate your turnover rate at least bi-annually. For companies that have a turnover problem, it should be calculated more frequently, checking the calculation monthly or quarterly. This way, you can see if the changes you are making are positively impacting your turnover rate or not.
Talk To Your Employees
One of the simple and more inexpensive ways to retain your talent is simple: talk to them. Get in front of your high-value staff and ask them for their feedback. You can conduct a “stay interview”, where you survey employees on what changes the company could make to keep them in their roles for the foreseeable future.
Focus on New Employees
As important as retaining your best talent is ensuring your new team members are given solid foundations from the moment they sign the job offer. A rocky or inadequate onboarding process could lead to higher rates of poor performance and employee dissatisfaction down the road. You need to make sure your new employees are being given the tools, training, and support they need to thrive. Without perfecting your onboarding and training processes, you can easily add to your turnover issue.
The Importance of Growth
One of the leading reasons for employee-initiated departures is a lack of development or room to grow. When employees feel they have hit a wall at their current company and aren’t being offered opportunities to develop new skills or earn a promotion, they will look elsewhere.
So, it’s important to provide clear outlines for employee growth and development. It’s crucial for managers to be having insightful 1 on 1 conversations with direct reports regularly, so they can support their employees in their development. Mostly, it’s important to have a clear path carved out with steps to follow that result in growth within your specific organization.
Bottom Line
If profit is the heart of your business – then your employees are the pulse. You need them to keep you alive and well! A high turnover rate, when left unchecked, can be devastating to a company’s profitability and reputation. Plus, backfilling roles is time-consuming and costly, which is just another reason to focus on retaining current talent.
By calculating your employee turnover rate regularly, you can easily assess what areas need improvement. Perhaps you need to have more robust recruiting processes, offer more room for growth, or bump your pay scale for certain roles.
Whatever the issue is, calculating your overall turnover rate is a great starting point for understanding where your organization stands and where improvements should be made. Using the insights from the calculation, as well as strategies to get to the root cause of your turnover, you can ensure your employees will stay longer, and your company will be stronger, too.
The eLeaP People Success Platform, which includes a continuous performance management system, provides organizations with powerful options to attract and retain high-caliber team members.