Why Is the Rate of Turnover Important?

Running an effective business involves staying on top of the numbers. Analyzing various metrics on a monthly basis helps a company track profits and spending, and also aids in targeting problem areas. Turnover metrics signify employee retention and are a red flag when talent starts slipping out the door. There are significant costs associated with high turnover. Employers can avoid potential retention issues by establishing strategies to reduce attrition when voluntary resignation numbers climb above desired limits.

Excessive turnover can heavily impact the bottom line. Replacement costs begin with advertising fees to seek candidates for job openings. Costs then include the number of hours that employees spend recruiting, screening and interviewing candidates. Once that process is through, costs are further increased by time allocated to orienting and training new hires. When valuable professional and managerial staff tender resignations, replacement costs are further increased due to a loss of expertise and leadership.

Hidden costs occur internally and externally. Vacant positions have an impact on staff. Redistributing the workload may get the job done temporarily, but morale declines when existing employees are overloaded for an extended period. Declining customer satisfaction is another hidden cost that can be attributed to unhealthy turnover.

A simple monthly turnover calculation is the number of terminations during the month divided by the average number of employee at mid-month times 100. Factors that do not belong in a turnover formula are the number of employees lost due to downsizing, military service, retirement, and non-work-related disability. Although turnover should be reported on a monthly basis, trends are more definitive when analyzed annually, and then compared to industry averages and the company’s historical data.

Low turnover in an organization typically signifies an ideal situation. Employees remaining in their jobs and establishing tenure with the company send a message to management that all is well. In some organizations this may be a false indicator. Lackluster performers with a complacent attitude often remain with an organization. Such employees can trigger multiple problems, such as low productivity and the spread of declining morale. The solution to this is increasing the turnover metric by creating involuntary dismissals to weed out employees who continually under-perform. In business, optimal turnover is the goal. This is accomplished by establishing strategies required to keep a company's productivity and employee satisfaction level in balance.

Before turnover becomes an issue, employers must uncover the factors that motivate employees to leave. Exit interviews may prove helpful in determining the reason for the exodus. Many terminating employees willingly share what triggered the decision to seek employment elsewhere. Although workers often leave for more money and an enhanced benefit package, recognition and training also play a significant role when making a decision to accept another offer. Administering an employee satisfaction survey on an annual basis is a viable method of analyzing overall employee engagement. Employers who use this vehicle to assess and make the recommended changes are more likely to prevent unwanted terminations.