How To Calculate Employee Turnover

Employee turnover is the most important metric to be tracking.

Not only should you be tracking it, but you should be actively working to optimize that number and bring it down.

I think a little turnover is normal, but of course you want to have the lowest number possible, and keep striving to lower the number.

Besides the financial effect that high turnover has, it has a lot of emotional effects, which I’ll discuss a few.

The financial effects of turnover are actually quite scary. Some estimates put it as high as more than double the initial salary. The problem gets even worse when you’re trying to replace a very specialized role that’s hard to recruit for.

More importantly in my opinion, it has a terrible effect on morale at the company. It creates a really bad company culture where everyone is waiting for their pink slip, so no one really cares about anything, and doesn’t put any effort into their work.

This is a sad way to have a company being run, but unfortunately, I feel like many companies operate this way.

It’s important to note, that employee engagement can lower turnover at your company, so you have to keep trying to engage your team.

Causes Of Employee Turnover

Hiring

According to the RainMaker Group, hiring problems account for 80% of employee turnover .

This is why it’s so important to make sure you have an amazing hiring process, and you’re always looking for ways to improve it.

The first step, is to make sure that you write a good job description, so that candidates know exactly what to expect.

Here’s how to write a good job description.

Then, I would recommend using video technology to help you with the interview process. You can use something simple, like Skype or Google Hangouts, or a more sophisticated tool like HireVue.

Finally, I would do something called hire by auditions, where you give candidates a test project to see how well they’ll perform.

Bad Managers

Another significant cause to employee turnover is a bad manager. Not all managers are bad, but there are so many managers out there who are stressed out, and don’t treat their employees properly.

PricewaterhouseCoopers says that 9 out of 10 barriers to the success of employee engagement programs are people related.

Remember, most people don’t quit their jobs, they quit their bosses. This means that it’s actually quite easy to fix, all managers need to do is appreciate their employees.

They need to learn how to be nice to them, respect them, and treat them like they would want to be treated.

How To Calculate Turnover

Let me show you the formula for calculating turnover:

formula for calculting employee turnover

For example, suppose you have a company with 200 employees, and 30 of them leave throughout the year. At the beginning of the year, they had 200 employees, and now they have 195 (you need to include the new hires).

example of employee turnover calculation

The Center for American Progress put together an amazing report on the costs of employee turnover, that I definitely recommend everyone checking out.

There are many ways that you can lower employee turnover, let’s discuss a few.

Ways To Lower Employee Turnover

Improve The Hiring Process

Like I mentioned above, by far the most important thing to work on is the hiring process. If you get that right, and you start hiring people that are the right fit for the job and the company culture, your employee turnover will go down.

Train Your Managers

I also mentioned bad managers, so an easy way to lower employee turnover is to train your managers.

I really believe that psychology plays an important role in leadership, and I really wish that more managers would take training in emotional intelligence and positive psychology.

I would highly recommend every manager reading this to take a free course from Coursera called Inspiring Leadership Through Emotional Intelligence. It’s taught by Richard Boyatzis, who is a distinguished university professor, and a professor in the departments of organizational behavior, psychology, and cognitive science.

Give Opportunity To Grow

What employees really want, as made famous by Dan Pink, is autonomy, mastery, and purpose. You can easily fulfill their need for mastery by letting them improve whatever skills they have for their job.

It’s actually a win-win, because if they’re better at what they do, they’ll be more productive.

Recognize Employees

Companies that scored in the top 20% for building a “recognition-rich culture” actually had 31% lower voluntary turnover rates according to research by Bersin.

What’s important to note about the research is that it’s more important to receive recognition from peers than it is from top managers, so set up a way for employees to praise and recognize each other.

What Do You Do To Calculate Employee Turnover?

Do you have any tips to share with us about how you’re able to calculate employee turnover? Is it helping lower employee turnover? Let me know in the comments!