Turnover Rate: How to Stop Losing Employees (and Make Better Hires)

If you're looking around the office and struggling to remember names because everyone's a new hire (again), it’s time to stop playing the name game and reconsider your talent retention strategy. If you've never calculated your company's turnover rate (also known as churn), don't worry. You don't need to be Matt Damon in “Good Will Hunting” to crack the code. Learning this simple calculation will help save you time, money, and great talent.

Turnover refers to the percentage of employees who are leaving your organization within a defined period of time. If you've ever heard someone refer to a workplace as a “revolving door,” that's another way of describing a high turnover rate where employees are flying out the door as quickly as they flew in. 

High turnover is an indication of larger issues at play that are often preventing you from a productive work environment. If it took three months to fill an open role, plus six months to realize it wasn’t the right fit, and another three months to rehire, that’s a whole year of delay towards achieving a business objective. No wonder Tony Hsieh, CEO of Zappos, calculates that bad hires have cost $100M to his business. I’m not going to let that happen to you.

If you care deeply about employee engagement, retention, or just the well-being of your company culture, then you're in the right place. I'm going to tell you precisely how to calculate your turnover rate and what causes the less desirable high turnover rate in the first place.

How to Calculate Turnover Rates

The three metrics you need to calculate employee retention are:

  1. The number of employees working for you at the start of the time frame.
  2. The number of employees working for you at the end of the time frame.
  3. The number of employees who left during the time frame.

First, you will want to get an average number of employees by adding the first and second metric together and dividing the total by two.

(Number of employees at beginning + number of employees at end) ÷ 2 = average number of employees

Then, divide the number of employees who left by your average number of employees and multiply that figure by 100. This gives you the total turnover rate percentage. 

(Number of employees who left ÷ average number of employees) x 100 = turnover rate

Here is an example of what a turnover rate looks like in one month:

1. The number of employees at the beginning of the month: 40

2. The number of employees at the end of the month: 60

  • (40 + 60) ÷ 2 = 50 employees on average

3. Employees who left throughout the month: 5

  • (5 ÷ 50) x 100 = 10% turnover 

Consider calculating the annual turnover rate in addition to smaller monthly calculations. Longer periods give a more accurate picture of the overall turnover rate. Shorter monthly calculations are better as a supplemental calculation so you can better understand your hiring activities on a micro scale. The formula is the same for both, so feel free to experiment.

Interpreting Your Employee Turnover Rate

Woman calculating the turnover rate

You might be wondering whether your percentage is high or low on the scale. The answer to that is a bit nuanced. 

The best way to accurately gauge this is by examining your result against your industry average. Company size also makes a difference. What might be considered a very high rate for a small business might be impeccably low for a large organization or multinational corporation. 

According to LinkedIn, tech and retail are among the highest turnover industries. Technology (more specifically software) has an industry average of 13.2% and retail has an industry average of 13%. Both are quite high compared to the global average of 10.9%. Those rates also jump around within different areas of each industry. For example, it’s not uncommon for salespeople turnover to be at 30-40% in tech. The bottom line is that context matters.

Use contextual data to inform yourself about the ideal turnover range for your business. The Bureau of Labor Statistics is a reliable starting point.

Temporary workers should be omitted from your calculations. Since they come and go, measuring their length of employment is irrelevant to the overall goal of company culture and employee engagement levels. Remain mindful of any short-term projects that require special staffing within a given period and treat them as outliers.

Also consider members of an ageing workforce who retire. While they are technically an aspect of company turnover, their leaving doesn't suggest that there is anything to fix in particular. 

When You Discover a High Turnover Rate

Person pushing on exit door

You've done the research and realized that your turnover rate is higher than the industry standard. Now what?

Since you know how to calculate and contextualize your company's overall turnover, it's time to consider what's ultimately affecting your employees’ decision to leave.

Common causes of turnover include:

  1. Poor management: LinkedIn reports that 75% of people quit their jobs because of their boss.
  2. A lack of work-life balance: A staggering 70% of employees report that there isn’t enough time to get the amount of assigned work done during regular hours according to Tiny Pulse.
  3. No potential career path or growth trajectory: This Gallup poll indicates that a majority of employees leave their jobs because of a lack of growth potential.
  4. A stale or oppressive company culture: Company culture goes beyond pool tables and happy hours on Friday – your employees want to feel that their wellness is being considered at every turn. A great way to check on how you’re doing is with employee engagement surveys
  5. Low annual salaries: Glassdoor confirms that a 10% base pay increase translates to 1.5% greater retention with existing employees.

It can be hard to get a straight answer when an employee leaves. Employees might find it awkward to be forthcoming with human resources or their hiring manager in exit interviews. Most often, their mind is already on their new job and they don't want to burn any bridges. To get a clearer idea of what isn't working in the workplace, some sleuthing is almost always required. 

To get closer to the root cause of a retention issue, ask yourself:

  • Which employees are leaving? If it appears to be mostly top performers, that's a big indicator that one of the above areas needs improvement, and quick. On the other hand, if a new hire leaves and cites culture fit, that can be relatively subjective and personal.
  • Are there patterns between employees who leave? If candidates drop off around the two-year mark, it may suggest limited career growth. If one team keeps losing people within a short period, this is a clue about the management on that team. 
  • Are there trends in exit interview responses? This is the best case scenario because it leads you straight to the source of where you need to improve.
  • Was there anything in the recruiting data that would have predicted the turnover? If there were no clues there, it may be time to consider how to develop a more robust interviewing process to get the data you need to make the right hire.

Digging into the causes of turnover can seem like a big undertaking. To prevent further damage, check in with your existing team before they’re on their way out. Uncovering the problem early on can save you from a costly cycle of going through the interview process all over again. Ultimately, it’s worth investing the time into anything that helps you to retain your top talent.

Why Employee Turnover Is a Cost-Saving Metric

Turnover rate: Four coworkers gathered around computer

By learning how to calculate employee turnover, you have taken the first step in empowering yourself. With the help of these insights, it can help prevent needless panic-stricken rehiring that is both time-consuming and costly.s 

Learn to contextualize this data and you’ll gain rich meaning on how to improve employee retention and hit your stride productivity-wise. Start by setting aside some time to look at the data that you already have access to and practice using the turnover calculation to get a sense of where you need to focus your talent retention efforts. 

Hiring is already a costly endeavor but the right hires make it all worthwhile. Perform regular pulse-checks with your team to encourage an open dialogue where they feel engaged and appreciated. Of course, there is no such thing as a perfect workplace and people will leave eventually — hopefully, after a long and rewarding career with your company.

Want to hire more high performers and increase retention?

Serchlight’s Talent Intelligence has got you covered