What Does Attrition Rate Mean? Definition and How To Calculate

An attrition rate can help companies identify areas to improve to maintain productive employees and increase their customer base. Learning how to calculate an attrition rate can help businesses keep track of employment longevity, hiring costs and customers. An attrition rate can be calculated monthly, quarterly or annually to monitor progress. In this article, we explain what an attrition rate is and how to calculate it.  

What is an attrition rate?

An attrition rate is a metric used to measure employees or customers lost over a period of time who are not replaced. The rate is shown as a percentage compared to the total workforce or customer base. Human resources employees often use an attrition rate to determine the number of vacant or eliminated positions. Marketing and sales employees could use a customer attrition rate to find areas to improve marketing or advertising campaigns. 

What is an employee attrition rate?

Also known as a churn rate, an employee attrition rate describes when a person retires or leaves their position and the company does not seek to fill the position. Unlike a turnover rate, an attrition rate focuses on the permanent/semipermanent loss of employees and positions over time and how these losses can affect the company. 

Attrition rates can have both positive and negative effects on a company. When an employee leaves and the company eliminates the position, it can save on staffing costs. However, the manager of the employee who left will typically shift the responsibilities to their team members, increasing their workload. 

What is a customer attrition rate? 

In addition to employee attrition, companies may also calculate customer attrition. Finding and retaining loyal customers is vital to the longevity of the business. Customer attrition focuses on the rate at which customers stop purchasing a company’s goods or services. The rate for customer attrition can be difficult to calculate.

While companies like auto shops may be able to track which customers are returning for vehicle maintenance and which ones are not, businesses like retail stores may have trouble identifying which customers are returning and which ones are not. 

Unlike employee attrition, there is rarely any benefit of the loss of customers. Therefore, a low rate of customer attrition is ideal for every company. 

Related: Operations Management: Everything You Need to Know

Causes of attrition rates

Finding the cause of attrition can help companies find ways to improve their employee engagement or appeal more to customers. Here are some common causes of attrition rates for both employees and customers: 

Causes of employee attrition

The most common causes of employee attrition are:

• Resignation

• Promotion

• Termination

• Personal reasons

• Retirement

Causes of customer attrition 

The most common causes of customer attrition are:

• Customer relationships

• Customer service

• Product availability

• Product issues

Related: How to Be a Good Manager

Types of employee attrition

Learning about the types of employee attrition can help you determine where you’re losing employees and if you need to take steps to improve engagement. Here are the types of employee attrition: 

Voluntary

When an employee decides to leave the company, the form of attrition is voluntary. They may resign for personal reasons, such as taking care of a family member. Resigning to accept a higher-paying position with another company is another example of voluntary attrition. 

Involuntary

Involuntary attrition happens when a company ends employment. Businesses could eliminate positions to reduce staffing costs or it could determine the position is no longer needed. Involuntary attrition is a common way for organizations to control costs. 

External

This type of attrition happens when an employee leaves to work at another company. They may resign to accept a position that more closely aligns with their career path or for a shorter commute. 

Internal

Employees who accept another position within the same company are contributing to internal attrition. They may work in another department or receive a promotion. 

Related: Human Resources: Definition and How it Works

How to calculate an attrition rate

Most companies use special software to calculate attrition rates, but learning the formula for attrition can help you better understand the numbers and percentages involved. Businesses usually determine attrition rates by the month, quarter or year. When determining an employee attrition rate, you can probably use exact numbers. A customer attrition rate may involve additional research and approximations. Here’s how you can calculate the attrition rate for employees:

1. Start with the number of employees at the beginning of the period.

2. Determine how many employees left during the period.

3. Find out how many employees were hired during the period.

4. Add the number of employees who left and the number of new hires to find out how many employees you ended with.

5. Find the employee average by adding the starting and ending numbers and dividing by two. 

6. Take the employee average and divide it by the number of employees who left to find the decimal rate of attrition. 

7. Multiply the decimal by 100 to get the attrition rate as a percentage.

For example, a human resources generalist needs to find out the annual attrition rate. The company started the year with 100 employees. Over the course of the year, nine employees left and five were hired. Here’s how the HR rep could find the annual attrition rate:

100 – 9 = 91

91 + 5  = 96

100 + 96 = 196

196 / 2 = 98

9 / 98 = 0.0918

*0.0918 x 100 = 9.18%*

It can be helpful to regularly determine attrition rates to identify trends. If you calculate monthly and quarterly attrition rates, you may notice the rate rising or falling. Generally, a lower attrition percentage means you’re retaining employees or customers. If you coordinate attrition rates with employee or customer surveys, you could find connections between the two that can assist in improving the company. 

For example, you may receive positive employee survey results that questioned team members about a new flexible working hours policy. Over the next few months, attrition rates are lower than usual. With the survey results and the attrition rate, you can determine that the flexible working hours policy likely helped retain more employees.