Worker turnover never comes cheap and a high or higher-than-expected turnover can definitely hurt your numbers. Let’s look at the why, the cost and beyond the obvious strategies to improve your worker retention rate.
Worker turnover vs worker turnover
It may sound counterintuitive, but turnover is not necessarily a negative thing. Strategic business changes might have you looking for a different set of profiles. There’s the inevitability of workers retiring. And then there are employees you terminate because of misconduct or underperformance.
Often a difference is made between:
Voluntary turnover: when the worker decides to leave the company. This can be for lots of reasons and we’ll tackle the more relevant ones later on.
Involuntary turnover: when the company terminates the worker. Think: layoffs market or strategy changes, bad behavior, underperformance, etc. . Another, more troubling category of involuntary turnover concerns those due to serious accidents.
The distinction between voluntary and involuntary turnover is clear. But there’s also merit in differentiating between good and bad turnover. Take notice of the difference in grouping.
Good or desirable turnover encompasses those workers that retire, workers that got terminated and underperforming workers that quit out of their own accord. The first group being inevitable, the last two ultimately saving you costs arising from disruption or substandard productivity.
Bad or undesirable turnover being all other, unforeseen, unfortunate turnover you would like to prevent.
Retention rate
Count all the workers in your company, on a specific worksite or in a single department. Suppose the number you get is 500. Then count how many of those workers are still in your employ after a period of one year (excluding new hires). Let’s say this number is 350. Then (350/500) x 100 gives you a 70% worker retention rate.
This is where a good turnover can provide a positive contribution. Experts recommend factoring in the good turnover. Suppose the headcount of this desirable turnover is 50, you add that to the 350. This alters the formula to (400/500) x 100, resulting in an improved retention rate of 80%.
The retention rate can be used as a baseline for future worker retention strategies or to compare your rate with that of other companies. Be aware though that a ‘healthy’ retention rate greatly differs from one industry sector to another and is also subject to (macro-)economic dynamics.
Also, know that a retention rate of 90% or higher is considered good … but in 2021 the overall average retention rate in the US was around 53%. Industries with traditionally higher retention rates are government, finance and insurance. The lower rates are registered in retail, accommodation and food services.
Trade, transportation and utilities scored a retention rate of 45% in 2021
Transportation, warehousing and utilities: 51%
Construction: 43%
Manufacturing: 60%
The seen and unseen costs of turnover
On average, each year businesses lose 18% of their workforce to turnover, of which about 12% is voluntary and 6% involuntary.
Most studies consider the average cost for replacing an employee at about 6 to 9 month’s salary. According to 2019 research Gallup states that “replacing just one individual can cost one-half to two times his or her annual salary”. Research puts the overall cost of voluntary employee turnover in de US for 2022 to a number over $1 trillion. But the cost of turnover is about more than money. Turnover can break down workforce efficiency. It will have a negative effect on the productivity and morale of former team members and other remaining workers. In some cases it can even threaten your brand and lead to litigation.