When running a business, you should worry about balancing employee turnover just as you worry about product quality, accounting, customer service, and the like.
A 100% employee retention rate isn’t an achievable goal, however. A recent survey conducted by AMA Enterprise said to instead strive to find a level of employee turnover that’s both reasonable and keeps costs down.
Employee turnover is a variable number and unique to every business, so a reasonable rate may seem difficult to define; the rate employees leave companies depends on several factors, including the industry, their expectations, and the use of contract workers.
Is There Such a Thing as a Good Turnover Rate?
The AMA Enterprise survey polled 1,000 companies. Of those:
- 46% stated that the perfect level of turnover is anything under 10%
- 19% felt that between 10% and 20% is ideal
- 4% indicated that a rate between 20% and 30% was the best situation
- 2% thought a rate greater than 30% was acceptable
- 29% weren’t sure what their ideal level of turnover would be
These numbers indicate that choosing an appropriate turnover level is a personal decision for every company.
Winning in the Long Term
The AMA Enterprise survey also discovered that focusing on employee retention and investing in ways to increase it pays off in the long run.
According to University of Michigan business professor David Ulrich, "[C]ompanies with better retention [in] key jobs than their competitors will win over time," adding that "most good leaders recognize that talent drives success over time."
To come up with appropriate numbers for your business, you also need to know what kind of turnover you’re dealing with. Say, for example, you have 100 employees – having the ten most competent leave would be far worse than having the ten most under-performing leave.
Kim Ruyle, president of talent management organization Inventive Talent Consulting, said it best: "Not all employee turnover is created equal."
Not Tracking Turnover is Hurting Businesses
Before you can choose an acceptable turnover rate for your business, it’s crucial to understand how to track turnover in the first place. The AMA Enterprise survey found that 12% of respondents had no way to track annual turnover rates while another 17% said they weren't sure if the company paid attention to retention at all.
"[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 businesses can increase retention rates by coaching low-performing employees and creating opportunities for advancement.
The Real Problem with High Turnover Rates
It’s well documented that high turnover rates are detrimental to businesses. The Houston Chronicle addresses several reasons, including that employee turnover directly affects company profitability. Rather than gaining back the approximately $16,000 you were paying a full-time, $8-an-hour employee, for example, you’ll have to spend anywhere from $3,500 to $25,000 to cover the costs of hiring and training a new employee as well as for lost sales and productivity.
Studies have also linked high turnover rates with low workplace morale, worsening product or service quality, and even a reduced marketing ROI.
Fortunately, there are companies like Insource Performance Solutions that recognize the challenges of high turnover and have solutions to solve them. Insource works with manufacturing and distribution operations to retain good employees and increase productivity by rewarding associates with financial incentives and providing clear, constant feedback regarding their performance. This alternative to temporary staffing significantly reduces employee turnover while also driving real labor costs savings.