Handling employee turnover is as much a part of running a business as product quality, accounting and customer service. However, it's important to understand that striving for 100 percent employee retention isn't a likely scenario. Instead, according to a recent survey conducted by AMA Enterprise, it's best to find the ideal level of turnover that is both reasonable and helps keeps costs down.
According to Human Resources Executive, the threshold for employee turnover is unique to every business, so coming up with the ideal level is often difficult, and depends on several factors. The industry the company is in, the expectations of the employees and the use of contract workers all play into turnover rates.
Is There a Good Turnover Rate?
In the AMA Enterprise survey, 46 percent of the 1,000 companies polled stated the perfect level of turnover is anything under 10 percent. Another 19 percent stated that striving for a turnover rate of between 10 and 20 percent is ideal, while only 4 percent said that keeping turnover between 20 and 30 percent was the best situation and 2 percent thought greater than 30 percent was acceptable.
What these results show, according to University of Michigan business professor David Ulrich, is that deciding on appropriate turnover levels is ultimately up to an individual company. Considering 29 percent of respondents stated they didn't know what would be the ideal level of turnover, it appears many firms may need to turn to new labor solutions to help manage their labor costs.
"Turnover range is a very hard number to justify," Ulrich said. "This should be an industry 'par' score."
Winning in the Long Term
The survey also uncovered that across the board, focusing on employee retention - and investing in ways to increase it - pays off in the long run.
"[C]ompanies with better retention [in] key jobs than their competitors will win over time," Ulrich stated, adding that "most good leaders recognize that talent drives success over time."
Sandi Edwards, senior vice president of AMA Enterprise, added that it's also important for businesses to know exactly what kind of employee turnover they are dealing with. This is to say that if 10 of the best workers at a company of 100 employees picked up and left, it would be much more disastrous than if 10 of the under-performing employees were to leave.
Perhaps Kim Ruyle, president of talent management organization Inventive Talent Consulting, said it best when she explained that "not all employee turnover is created equal."
Uncertainty is a Real Problem
Although coming up with an ideal turnover percentage is a serious task, it's crucial for companies to understand how to track turnover in the first place, the media outlet stated. The survey found that 12 percent of respondents had no way to track annual turnover rates, and another 17 percent said they weren't sure if the company kept tabs on retention.
"[T]hese perceptions are important at a time when understanding the impact of talent loss is critical for managers to grasp and cope with," Edwards said, adding that turnover can be lowered by coaching low-performing employees and by creating opportunities for advancement.
The Problem with High Turnover Rates
The detriments of high turnover rates are well documented. According to the Houston Chronicle, falling revenue is one of the biggest reasons to tackle turnover problems. For example, losing an employee who makes $8 an hour - just above the federal minimum wage - could cost a retail store as much as $25,000. These costs are attributed to hiring expenses, training, missed sales, and productivity losses.
High turnover has also been linked to low workplace morale, worse product or service quality, and even a drop in marketing ROI.
Fortunately, there are now companies like Insource Performance Solutions, that have recognized the challenges that come with high turnover and developed a solutions to solve it. Insource helps manufacturing and distribution operations retain good employees and increase productivity by rewarding the associates with financial incentives and providing clear and constant feedback regarding their performance. This alternative to temporary staffing can not only significantly reduce employee turnover but also drive real labor costs savings as well.