Attrition

What is attrition in the workplace?

Attrition refers to a slow, steady reduction of something over time. In business and HR, the term usually refers to employee attrition: reducing employee numbers by not replacing staff who leave for voluntary reasons like resignation, retirement, or relocation. However, attrition can also refer to customer attrition: when customers stop doing business with a company without an equal number of replacements. 

Interestingly, employee and customer attrition can be interconnected. Happy and engaged employees tend to provide excellent customer service and foster customer satisfaction and loyalty. On the other hand, a high employee attrition rate can disrupt customer relationships and increase customer attrition.

Both employee and customer attrition can harm an organization, leading to disruptions in operations, inflated recruitment and training costs, and a loss of institutional knowledge. Organizations must view both employee and customer attrition in an integrated way, with initiatives to boost both employee and customer satisfaction and ensure sustainable business success.

Employee attrition 

The gradual reduction of a workforce can happen for multiple reasons. Staff may voluntarily leave positions due to dissatisfaction in the workplace, but attrition can also include individuals leaving for better positions, personal relocation, retirement, illness, or even death. 

Typically, active businesses look to replace staff as soon as possible, but in some cases, businesses choose not to replace employees. Financial difficulties may lead organizations to reduce headcount to save costs, and attrition is a softer and more gradual way to do this than laying employees off. Roles becoming obsolete could also lead to their non-replacement when people leave. Attrition can also happen naturally when there are high levels of employee dissatisfaction in a workplace.    

Reducing employee numbers via attrition can take anywhere from a few months to a few years due to its unpredictability. When natural attrition occurs, employers must understand why. Common reasons employees leave workplaces include a negative work environment, a lack of career growth opportunities, poor leadership, a lack of work-life balance, unsatisfactory compensation or benefits, or feeling undervalued. In these cases, employers should proactively use customer retention strategies to address the issues with initiatives to boost employee mental health and workplace satisfaction.

Customer attrition 

Losing customers over time can be a bad sign for business, directly impacting revenue and profitability. 

Customer attrition can happen for many reasons, from having negative experiences to changes in life events or circumstances or even illness or death. Poor customer support like slow response times and failure to resolve problems is one of the most common reasons behind customer loss. Dissatisfaction with a product or service, switching to a competitor, a company failing to adapt to evolving customer needs, and negative reviews can also trigger customer churn. 

It is important to measure and track customer attrition to identify and counteract problem areas with effective customer retention strategies. Continuous monitoring of services and feedback from customers can help businesses keep on top of customer satisfaction. Investing in customer service, adapting to customer and market needs, and offering customer incentives can all contribute to reducing customer attrition.

What is attrition rate and how is it calculated?

Keeping track of attrition is crucial to maintaining sustainable business health. 

Employee attrition rate 

Employee attrition rate is a metric that quantifies the rate at which workers leave a business over a specified time. Many companies use one year. When companies are not intentionally downsizing, businesses must measure employee attrition to retain talent and maintain workforce stability. A high attrition rate compared to industry standards might mean you should look at your company culture, compensation, and benefits. 

You can calculate the employee attrition rate using the following formula:

Employee Attrition Rate = (Number of Employees Who Left During a Period / Average Number of Employees During the Same Period) x 100

Let’s take the following example. Imagine 100 employees left a company over the course of a year that had a workforce of 1000 at the start of the year. If the company has 900 employees at the end of the year, the average number of employees during the period would be 950 (i.e. (1000+900)/2). If you divide the number of employees who left (100) by the average (950) and then multiply by 100, you get an attrition rate of 10.5%.

Customer attrition rate

Customer attrition, or churn rate, measures the percentage of customers who stop doing business with a company over a specific period. Companies need to track this metric to ensure that more customers aren’t leaving than is usual for their industry. 

Use the following formula to calculate customer attrition rate:

Customer Attrition Rate = (Number of Customers Lost During a Period / Total Number of Customers at the Beginning of the Period) x 100 

If a company had 1000 customers at the start of one month and lost 100 customers during that month, you would divide the number of customers lost (100) by the initial customers (1000) and then multiply it by 100, leaving you with a customer attrition rate of 10%.