What is employee turnover? Calculation, effects, and prevention tips

Employee turnover refers to how many employees leave an organization in a given period of time. Sounds scary, right?

While employees will always flow in and out of your business, prioritizing staff retention leads to improved service and morale. Whether you’re concerned with customer service or sales, retaining your top performers will pave the way for your business’s success.

According to the Zendesk Employee Experience Trends Report, 42 percent of managers forecast employee churn rates to increase in the next year. Although turnover creates challenges for agents, managers, and customers, you can take steps to reduce it. Boost employee engagement and retention by learning how to calculate employee turnover, reviewing its causes, and implementing solutions.

• Definition of employee turnover
• Effects of employee turnover
• How to calculate turnover
• Analyzing your turnover rate
• Strategies to reduce turnover
• Improving retention with Zendesk

Causes of employee turnover

There isn’t one single cause of staff turnover. Agents leave and lose their jobs for many reasons, some of which aren’t in a company’s control. However, some of the most popular reasons for employee turnover include:

• Lack of opportunity for growth or career development
• Natural career progression
• Feeling burnout and stress from overworking
• Negative feelings towards boss or management
• Toxic work environment
• Personal issues or life events
• Competitive offers from other companies
• Lack of work-life balance
• Involuntary departure decided by the company
• Lack of tools, training, resources, or help desk software to do their job

Types of employee turnover

While your employee turnover rate accounts for all departures, it doesn’t explain why workers leave. For more specificity, try breaking turnover into smaller categories; different employee turnover types attach context to each separation. The four types of turnover include:

• Desirable turnover: When losing employees benefits the company. For example, replacing poor workers with more diligent ones is desirable turnover.
• Undesirable turnover: When turnover hurts your business. For example, if an employee quits and uses your sales process for a competitor.
• Voluntary turnover: When an employee chooses to leave. Voluntary turnover occurs when employees switch jobs, return to school, or retire.
• Involuntary turnover: When you lay off staff or fire employees for not meeting job expectations or budgetary reasons.

Note: These turnover categories can overlap; for example, a termination can be undesirable and involuntary.

Effects of employee turnover + why it matters

Employee turnover costs your business time, money, and talent. Retraining new staff takes valuable resources growing businesses should invest elsewhere. Employee churn can also point to issues management may not be aware of.

Additionally, while turnover is an issue in itself, it may not make up the full picture. For example, staff losses are often a symptom of greater business problems. On top of that, high turnover creates new problems for businesses that worsen existing issues and stand in the way of their success.

Too much turnover results in:

• Extra expenses from hiring and training a replacement. Repeatedly hiring and training replacement agents will lower your return on investment (ROI) over time.
• Lower morale for employees who stay. Staff churn puts more work in front of remaining employees and sends a message that they should leave.
• Shortage of skilled and experienced workers. Skilled employees are an asset to your business. Losing that asset hurts your overall performance.
• A poor customer experience. A good customer and employee experience go hand in hand. Dedicated agents can ensure the best customer journey.

How to calculate employee turnover

You can calculate turnover by plugging a few variables into this employee turnover formula:

To get the required information, follow these steps:

1. Set your time frame. While most businesses calculate turnover by year, you can look at a season or another period of time.
2. Find your total employee headcount from that period. Anyone on the employee payroll counts towards this figure. However, you can exclude contractors and temporary employees.
3. Note the number of separations you experienced in that period.
4. Calculate your average number of employees. Use the formula:
   (number of workers at the start of a period + number of workers at the end of a period) / 2
5. Plug your numbers into the employee turnover equation.

Employee turnover calculation example

Let’s assume you ran a small software company last year. If you wanted to calculate last year’s annual turnover, collect the following data:

• Your staff retained 21 workers in January but dropped to 18 by year’s end
• You had four separations last year and replaced one employee
• Your average number of employees = (21 + 18) / 2. The total comes out to 19.5.

Now plug this data into the turnover formula:

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Analyzing your employee turnover rate

While the turnover equation offers valuable data, assessing your result is more important. Even if you retain most employees, the ones who leave paint a picture of daily operations. Employers should look for patterns and find the main reasons why employees depart. You can do so by asking these questions:

• Who is leaving?
• What explanations for leaving come up in exit interviews?
• When did turnover reach its highest and lowest levels?
• Are there patterns in turnover?
• What have employees said about staff attrition?
• How do they describe their employee experience journey?

Turnover analysis helps point you to the root cause of employee separations. Job turnover may occur for internal or external reasons. Start by making sure your staff has the tools they need to thrive. Then, look to your competitors and see if they retain their talent or entice yours.

What is a good employee turnover rate?

Across fields, employers should aim for a 10 percent turnover rate. At this level, employers can retain their talented staff and make room for new hires. Though, a healthy business can sustain a turnover range of 12 to 20 percent. When you review your turnover rate, keep a few points in mind:

• Turnover rates vary by industry. Retailers have lower employee retention rates than other companies. Depending on your field, the average employee turnover rate may vary.
• New or expanding businesses can face higher turnover. After a hiring surge, there’s no guarantee all your new employees will stay. Expect some dropoff when looking to expand or trying a new business development strategy.
• Low turnover isn’t always a good sign. Only some new hires will fit right into their role. A healthy turnover rate makes room to hire staff better suited for their positions.

The cost of employee turnover

High employee turnover dramatically cuts into a business’s profits. According to Express Employment Professionals, turnover costs businesses an average of $57,150 annually. Nearly a quarter of hiring managers claim it costs them over $100,000. While this range is broad, turnover costs involve several variables:

• The separated employee’s seniority and position
• The timing of their departure
• The number of workers who reported to the lost employee
• The cost of hiring and training their replacement
• The previous employee’s industry connections
• The number of replacements you go through

Even replacing entry-level employees costs the equivalent of a few months of salary; so, ultimately, retention is key to growth.

Employee turnover by industry

The U.S. Bureau of Labor Statistics reported an average turnover rate of 47.2 percent across industries. Here are a few examples of turnover rates across industries:

• Accommodation and food services: 86.3 percent
• Arts, entertainment, and recreation: 76.3 percent
• Professional and business services: 64.2 percent
• Construction: 56.9 percent
• Trade, transportation, and utilities: 54.5 percent
• Manufacturing: 39.9 percent
• Health care and social assistance: 39.4 percent
• Information services and technology: 38.9 percent
• Real estate, renting, and leasing: 34.9 percent
• Financial activities: 28.5 percent
• Educational services: 25.5 percent
• Government: 18.1 percent

Strategies to reduce employee turnover

Not only will lowering turnover improve your business but removing the root cause of turnover will help optimize company performance. The strategies used to retain employees will also boost their performance and dedication to the business. Here are a few actionable ways to keep your top talent.

Improve employee retention with Zendesk

Successful businesses treat team members as valuable assets. While some staff will move on, reduced employee turnover can boost morale, improve service, and dramatically increase your training ROI. Avoiding employee turnover isn’t just a courtesy, but rather supporting your staff is a business imperative.

To help you meet employees halfway, check out the Zendesk Employee Experience Trends Report and learn how to power your business with a people-centered approach.