Career Testing
Career Testing
Career Testing
ENTREPRENEURSHIP / NOV. 24, 2014
version 3, draft 3

How to Calculate Turnover

Turnover is part of business. It really can’t be avoided. The best you can hope for, and word towards, is lowering your turnover rate to as low as possible (although hitting and maintaining a zero is incredibly hard).

Turnover refers to employees leaving positions that you then need to fill. This may be voluntary (employees that retire or quit) or involuntary (employees being terminated or laid off). Either way, the result is the same.

The Employee Turnover Equation

Finding your employee turnover is exceedingly easy. Take the number of employees that left the company during a period of time (typically a year, although very large companies with thousands and thousands of employees may calculate for a month) and divide it by the total number of employees in your organization.

Number of Exiting Employees / Total Number of Employees = Turnover Rate

So, for example, if you had 17 employees leave from a company with 85 employees, your equation would be 17 / 85 = 0.2, or 20%.

Once you have your turnover rate, it’s often a useful exercise to compare it to the local, national, and international industry average. Those stats are usually available from associations and organizations. If you’re below the average, kudos. Keep it up (whatever it is you’re doing). If you’re above it, you need to find ways to fix that.

Why It Matters

Turnover can be expensive. Very expensive. Every time an employee leaves - whether voluntary or involuntary - there are a number of related costs:

  • For the exiting employee, you may have to pay a severance package, unused vacation days, continue various benefits for a set period of time, pay for exit interviews and reviews, and so on.
  • You have to advertise the suddenly open position, recruitment, hours spent interviewing and/or reading/reviewing resumes, send hiring personnel to recruitment fairs (including airline tickets, hotel, food), and on and on.
  • Once you’ve found a replacement, your offer may include a relocation allowance, and you’ll likely have to pay for training and onboarding (hours x rate for existing employees to conduct the training, materials, courses, certifications).

That’s a lot of expense. You can calculate the average turnover cost by adding the average outgoing employee costs, the average recruitment costs, and the average new employee costs and dividing by the total turnovers. It will give you an (average) turner cost. No matter how low, this is a figure you want to reduce and eliminate as much as possible.

Experiment with Precision

Finding your basic turnover rate is straightforward. To really explore it, though, you’ll want to differentiate on a number of variable.

Split the total number of exiting employees into voluntary and involuntary groups. Work with them separately. Calculate a “voluntary turnover rate” and an “involuntary turnover rate”. Which is higher? Why do you think that is?

If your involuntary rate is high(er), you should look at ways to lower operating costs that don’t include layoffs. It will save money in the long run. (Remember...turnover is expensive!). If you’re firing a number of employees over the course of the year for incompetence, then you need to take a long, hard look at your hiring practices.   

If it’s the voluntary rate that is the higher of the two, ask yourself why so many people are quitting (retirement is a different class). Better training, better management, and a more inclusive and engaging corporate environment will generally result in more people staying with the company.

Look at how long employees have been with the company before leaving. Less than a year? More than five years? Longer than ten? Determine turnover rates for a variety of very specific groups to truly get an overall picture of your turnover health.

Turnover is, for the most part, unavoidable. However, by keeping an eye on it, you can take steps to reduce it each year, and that’s great for your staff and bottom line.

 

Image: iStock

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