Attrition: What Is It? (With Examples)

Attrition is a common part of the business world, and it can be both a strategy and a stumbling block for your organization. Because of this, it’s important to have a thorough understanding of what attrition is.

In this article, we’ll explain everything you need to know about employee and customer attrition, including how to calculate it and how to respond to it.

Key Takeaways

• Staff attrition is when an employee leaves or is fired and you don’t fill their position.

• Companies often use attrition to cut down on operating costs without having to conduct layoffs.

• Customer attrition occurs when your client base shrinks over time instead of growing.

What Is Staff Attrition?

Staff or employee attrition refers to the employees gradually leaving the company and not being deliberately not being replaced. It occurs due to common currents of employees exiting their position due to normal life circumstances.

Examples of circumstances that could cause attrition include:

• Retirement

• Resigning

• Family obligations

• Relocation

• Better job offer

• Eliminating the position

Pros and Cons of Employee Attrition

Employee attrition has a major upside and a major downside for companies:

• Pro: It can save money. In business, attrition specifically refers to when the company experiences a loss that a new hire has not replaced.

  While this may seem like it could cause holes in the organization’s workforce, some employers choose to use this as a method of cutting costs instead of implementing lay-offs. Taking advantage of attrition to reduce expenses on an employee’s salary is a positive way to view a loss in the workforce.

• Con: It can damage morale. While attrition can be a viable solution long-term for some companies, many will need to fill the position eventually.

  Utilizing an employee’s natural departure from the company to save money by not filling the role can land that person’s workload in the laps of your other team members.

  Unless they see some benefit from picking up the slack, this will likely lead to a tense work environment.

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Voluntary vs. Involuntary Attrition

Attrition can refer to voluntary actions on the part of employees (retirement, resignation, etc.), while involuntary attrition involves lay-offs and downsizing.

Generally speaking, voluntary attrition is the better option, as it has less effect on morale. It’s also cheaper since lay-offs usually entail hefty severance packages, the continuation of benefits, and an increase in unemployment tax payments.

Still, sometimes a company is in such disastrous financial straits that they can’t afford to wait for employees to quit of their own accord. Laying off employees is a way to immediately reduce overhead. And since you obviously won’t replace the employees you’ve laid off (immediately, at least), this still counts as attrition.

What’s the Difference Between Staff Attrition and Turnover?

The difference between staff turnover and attrition lies in the employer’s intent with what to do about the open position.

• With employee attrition, the employer does not intend to fill the position.

  Employee attrition is often perceived as a situation with more positive outcomes for the employer because it allows them to reduce costs on an employee’s salary instead of laying off a strong employee to make cuts.

• With employee turnover, the employer does plan on finding a replacement for the position.

  Staff turnover is commonly regarded as a negative situation because the company is tasked with finding and training a replacement, which can be a costly endeavor.

Examples of Employee Attrition and Employee Turnover

Understanding terms like attrition and turnover can be tricky without real examples. Let’s take a look at four fictional companies in different scenarios:

1. Voluntary Attrition Example

   Aisha has been working as an accountant at ABC Inc. for three years and she’s happy with her job. But her spouse recently took a position in another state, and she’ll be leaving her position. Since hiring Aisha, ABC Inc. has streamlined its accounting department, and so they won’t need to replace Aisha once she leaves. The company can mark her departure as attrition in its books.

2. Involuntary Attrition Example

   XYZ Corp. is in a bad spot after the last financial report came out. Stock prices are plummeting and the company is approaching bankruptcy. The company decides to eliminate entire departments that aren’t revenue-generating. The 50 people they let go are considered part of staff attrition for the year since they will not be replaced for the foreseeable future.

3. Voluntary Turnover Example

   John was hired to lead BigTech’s product management team. Unfortunately, his team has consistently underperformed and most see it as John’s fault. He’s always late for work, unprepared for meetings, and lacks the hard knowledge to converse fluently with his employees. In short, it’s not a good fit, and BigTech decides to fire John. Because BigTech intends to refill the position with a more qualified individual, John’s departure is considered turnover.

4. Involuntary Turnover Example

   Henri has been working for XYZ Inc. for the past 4 years. During that time, he’s seen peers who were hired after him get promoted, while he’s only received cost of living adjustments and a few small raises. Henri decides to look for a new job and finds one that offers him 15% more than he’s currently earning. He quits his job at XYZ Inc. The company will now have to replace Henri and train his replacement, making this count as employee turnover.

How to Calculate Employee Attrition Rate

To calculate the employee attrition rate of a company, use this formula:

This formula will tell you your company’s annual attrition rate.

For example:

How to Deal With Voluntary Staff Attrition

Voluntary staff attrition — attrition caused by employees leaving of their own accord — can often be the result of unhappy workers. Determining the root cause of employee dissatisfaction and reasoning for attrition can help deal with it long-term.

Consider the following tips for handling staff attrition and how to improve employee satisfaction in the future:

1. Figure out the root cause. If you’re seeing spikes of staff attrition within your organization, it’s likely there’s a common cause of this movement towards departure. Figuring out what this root is can help you tackle it and retain your talented employees in the future.

   Maybe your compensation package isn’t able to compete with other major players in your field. Possibly, there’s a particular coworker who is creating a hostile work environment and making better employees seek alternative job options.

   Find the root cause of your company’s attrition, and then focus on how to solve this.

2. Look for signs of loyalty in the interview stage. When you’re looking to fill a position, it can be tempting to hire the first person who has credentials and is qualified. However, failing to consider a potential employee’s loyalty and retention in the future can lead to a complicated situation if they leave abruptly.

   While you’re interviewing candidates for a position, you should be asking strategic questions to assess their employee ethics and integrity. Soft skills can make for a much more dependable employee.

   Examples of interview questions that evaluate an employee’s integrity include:

   • Tell me about a time you faced an ethical dilemma at work and how you overcame it.

   • How do you earn the trust of your co-workers?

   • Have you ever had to admit a mistake?

   • Where do you see yourself in five years?

   • What’s the most difficult decision you’ve made in your career thus far? How did you handle it?

   Spend a fair amount of time dedicated to recruiting the right employee to reduce attrition.

3. Ask for employee feedback. One way to effectively measure what employees in your company are happy and dissatisfied with is by asking them for employee feedback. This format of open discussion where the staff member’s opinions and experiences are put on the table can make them more comfortable and ultimately happier.

   This can be done in a few ways. You can set up meetings with your current staff on a rotating basis to discuss their feedback for their role and company. This will give you a good idea of the positives and negatives your current employees are facing at work.

   If you’re dealing with a situation where you want to learn more from a specific employee’s dismissal or resignation, you can arrange an exit interview. During an exit interview, you can establish a clear understanding of why the staff attrition occurred and what actions you should take to improve retention next time.

4. Improve working conditions. Oftentimes, finding that your company is dealing with a high employee attrition rate can be traced back to poor working conditions and dissatisfaction with the job. One way to improve working conditions is by addressing the problems your staff has.

   Questions about working conditions to consider include:

   • Does your staff feel like they’re paid a fair salary based on market average and experience level?

   • Are they satisfied with the upward mobility their role offers?

   • Are your company’s benefits package and perks strong enough to incentivize your staff to stay with the organization?

   • Does the company culture promote collaboration and open discussion?

   To answer some of these questions, you may have to consult your current staff for their honest opinions and feedback. If you’re finding that your company isn’t providing satisfying working conditions, you may want to think about making some changes to improve attrition rates.

5. Engage your employee’s specific skills. Every member of your company’s team is a unique individual with their own prominent skills and experience. Taking note of and utilizing your employee’s personal abilities can benefit your attrition rates in several ways.

   Firstly, it makes your employees feel seen. When you explain to a staff member that you choose them to work on a specific project because of their expertise in the subject matter, it verifies that you’re looking into opportunities for them to excel. It displays your consideration for their success.

   Additionally, playing to your employee’s strengths can benefit your organization because it allocates tasks to the people most fit to complete them. You may be surprised at how far your company can advance when you consider each employee’s specific skills. It leaves less room for error and gives your team the ability to showcase their capabilities.

6. Add on to your organization’s benefits package. While many companies aren’t able to award their entire staff with raises to improve attrition rates, it may be possible to beef up the benefits package you’re offering.

   The great thing about providing a lot of benefits is that it improves employee morale while also possibly benefiting the company.

   For example, offering your employees a set number of remote work days per quarter can be very useful for them. It allows them to accommodate a hectic life schedule when needed while still accomplishing their work.

   Small gestures like this can make a big difference in an employee’s perspective on how much you value them and increase the likelihood that they’ll stay on board. At the same time, it doesn’t reduce any productivity or cost the company funds.

   Examples of benefits your company could offer employees include:

   • Health, dental or vision insurance

   • Paid time off (sick days, vacation days, floating holidays)

   • Tuition reimbursement

   • Childcare options

   • Stocks

   • Flexible schedules

   • Relocation assistance

What Is Customer Attrition?

Customer attrition describes when your client base is dwindling and you’re steadily losing your customers. This is another common occurrence in the business world.

Customers move on from becoming loyal purchasers at one point or another. Either they age out of the company’s target demographic, experience a change in financial situation, or other external life circumstances change their perspective.

Why Your Customer Attrition Rate Is Important

Your customer attrition rate keeps track of how your corporation is doing in terms of holding onto clients.

This rate is calculated by taking the number of customers you had at the beginning of a period and dividing it by the number of customers at the end of the timeframe. This equation will result in a percentage that will describe your company’s growth or decline in the customer base.

There isn’t any definitive metric that determines what a good or bad attrition rate is. You know your business best and can decide if customer return has gone up or down.

Following your company’s customer attrition rate is critical for creating a strategy to improve or maintain your numbers.

How to Prevent Customer Attrition

There are a few steps you can take to help prevent or remedy customer attrition:

• Make sure your product solves customer problems. Don’t sell a product or service that you think customers want, sell one that they actually want. This means listening to customer feedback and making changes based on that feedback.

• Adapt to new trends and practices. Markets and customers are always changing, so adapt right along with them. You don’t need to give in to every trend and fad that comes along, but don’t avoid change just because “That’s the way you’ve always done it.”

• Provide excellent customer service. This means using technology in a customer-centric way, being easy to contact, and making your customer feel valued during and after the purchasing process. Customers who feel valued are more likely to stick around than those who don’t.

• Address customer complaints. If your customers are frustrated and don’t feel like you’re addressing their concerns, they’ll move to another company. By politely and thoroughly addressing customer complaints, you’ll improve your customer loyalty.

Final Thoughts

It’s an inevitable reality that every company will face customer or staff attrition. Even though it’s a natural process, it can be a troubling situation for an unprepared business to be left with a vacant role or have to deal with a poor retention rate.

Dealing with staff and customer attrition is a normal part of running an organization. Gaining skills for coping with it and learning more about the meaning of attrition can improve your team’s response when it happens.

Author

Sky Ariella

Sky Ariella is a professional freelance writer, originally from New York. She has been featured on websites and online magazines covering topics in career, travel, and lifestyle. She received her BA in psychology from Hunter College.