Retention Rate vs. Attrition Rate
If you own or run a small business, your employees are no doubt a vital part of your everyday operations. But keeping employees content and fulfilled can be a difficult job in and of itself. One way you and your human resources department can begin assessing the quality of employment at your company is by determining retention and attrition rates. Retention and attrition rates are often used in business to identify employment trends, motivations and challenges. Attrition rates can also help identify trends in the industry and overall business growth.
In a nutshell, a retention rate is the percentage of employees your business has retained during a certain time period. For example, if you started 2018 with 20 employees and ended 2018 with 15 employees, your retention rate would be 75 percent, meaning that you retained three quarters of your workforce. Attrition, however, measures the exact opposite. The attrition rate shows the percentage of employees you lost for one reason or another and did not replace. If you started the year with 20 employees and finished it with 15, your attrition rate would be 25 percent.
Your retention rate can tell you many things about your company. For instance, a high retention rate usually indicates that your employees are satisfied in their work and that your company is providing competitive compensation and benefit packages to employees. A particularly low retention rate may be a red flag indicating the need for some changes to policies and procedures that affect employees. A good way to determine what your company is doing right is to survey your employees on a yearly basis. Through a survey, you can help pinpoint what particular benefits, policies or procedures are helping to boost your retention rate.
Your attrition rate simply signifies a reduction in workforce for one reason or another. This reduction could be due to retirement, death or resignation. Since the attrition rate is the overall reduction of workforce, it usually does not include situations where a job vacancy is created and then filled. A high attrition rate could be a red flag for your HR department and indicate the need for policy changes – or it could be a result of dwindling business or product demand. Many companies conduct exit interviews when an employee voluntarily resigns in order to help understand what aspects of the business made it undesirable for employment. Your attrition rate is somewhat different than your turnover rate, because it indicates the overall reduction of workforce and does not account for the positions vacated and then filled with new employees.
Small businesses also often use retention and attrition rates to determine customer loyalty. Established customers who continue to use your product or service are “retained” and would be represented in your customer retention rate. Customers who, for one reason or another, stop using your product or service are represented in your customer attrition rate. Your customer retention and attrition rates serve as indicators of market or industry trends, good or poor customer service, good or poor product quality, or a number of other factors. Soliciting regular feedback from your retained and non-retained customers is a good way to determine areas of improvement for your business.