Metrics That Matter

November 14, 2023

Attrition

Every time I hear the terms "attrition" and "turnover" tossed around interchangeably, I can't help but pause. It's a common oversight, but it's one that offers us a glimpse into a deeper issue: our understanding of the workforce's dynamics. 

While both terms talk about employees leaving, they capture different facets of this phenomenon. Attrition, in particular, holds nuances that often go unnoticed. It's this under-the-radar metric that I believe holds the answers to many of our pressing questions about employee behavior and satisfaction. 

So, what's the big deal about understanding attrition? 

Well, it gives us a clearer picture of why employees leave. Instead of just counting exits, we dig into the reasons. In this article, we'll break down attrition, show how it's different from turnover, and highlight its importance for any organization.

It's easy to mix up 'attrition' and 'turnover.'

Many people mistakenly equate attrition with turnover. While both concepts revolve around employees leaving a company, they are distinct.

Turnover refers to the rate at which employees enter and exit a company. It's calculated by dividing the number of separations (including resignations, layoffs, discharges, etc.) by the average number of employees and then multiplying by 100.

For example, if a company had 50 employees at the beginning of the year and experienced 10 separations during that year and an ending headcount of 60, the formula would be:

Annual Turnover Rate = (10 separations / ((50 + 60) / 2)) * 100
Annual Turnover Rate = (10 separations / (110 / 2)) * 100
Annual Turnover Rate = (10 separations / 55) * 100
Annual Turnover Rate ≈ 18.18%

This calculation gives you an approximate annual turnover rate of about 18.18%. It indicates the percentage of employees who left the company during the entire year relative to the average workforce size. Retention, however, is the percentage of employees that remain with a company over a specific period. Attrition is the opposite of retention.

For instance, if you have a 70% retention rate, your attrition rate would be 30%. Understanding attrition in terms of cohorts—groups of employees hired within the same timeframe is crucial. Analyzing cohorts helps in understanding patterns and trends over time.

Imagine a company that hires employees quarterly and wants to track attrition rates within different cohorts of employees over one year. They have four cohorts, each representing employees hired in a different quarter: Q1, Q2, Q3, and Q4. The company wants to analyze attrition within these cohorts.

Here's a simplified scenario:

Cohort Q1: 30 employees were hired in the year's first quarter.C
ohort Q2: 25 employees were hired in the year's second quarter.
Cohort Q3: 35 employees were hired in the year's third quarter.
Cohort Q4: 20 employees were hired in the year's fourth quarter.

Now, let's assume the following attrition data:

Cohort Q1 had 5 employees leave the company during the year.
Cohort Q2 had 3 employees leave the company during the year.
Cohort Q3 had 7 employees leave the company during the year.
Cohort Q4 had 2 employees leave the company during the year.

To calculate attrition rates for each cohort, you would use the following formula:

Attrition Rate for a Cohort = (Number of Employees Who Left in the Cohort / Initial Number of Employees in the Cohort) * 100

For example, for Cohort Q1:

Attrition Rate for Cohort Q1 = (5 employees who left / 30 employees initially in Cohort Q1) * 100

Attrition Rate for Cohort Q1 ≈ 16.67%

Similarly, you can calculate the attrition rates for the other cohorts:

Attrition Rate for Cohort Q2 ≈ (3 / 25) * 100 ≈ 12%
Attrition Rate for Cohort Q3 ≈ (7 / 35) * 100 ≈ 20%
Attrition Rate for Cohort Q4 ≈ (2 / 20) * 100 ≈ 10%

These attrition rates represent the percentage of employees within each cohort who left the company during the year. Analyzing attrition rates within cohorts can reveal patterns and trends specific to each group of employees. For instance, you might notice that Cohort Q3 had a higher attrition rate, suggesting a need to investigate and address retention issues for that particular group of hires. This information can guide HR strategies and interventions to improve employee retention.

In a case where there is a RIF, Turnover can give alarming results with no actual path to a solution.

In the example below, a company started the year with 50 people and ended the year with 60 people. However, 50 people left during the year. This means during the course of the year, 60 people were hired. Turnover gives an alarming percentage with no nuanced understanding of what took place during the year.

Example:

Turnover Rate = (Number of Separations During the Year / Average Number of Employees During the Year) * 100

Turnover Rate = (50 employees who left / ((50 + 60) / 2)) * 100

Turnover Rate = (50 / (55)) * 100

Turnover Rate ≈ 90.91%

On the other hand, Attrition Cohorts can help companies implement targeted retention strategies for that specific group rather than just looking at the overall attrition rate of approximately 90.91%.

The real value in analyzing attrition lies in its actionable insights. For instance, if one cohort has a 50% attrition rate over two years while another from the same timeframe has only 10%, it prompts further investigation. Is there a departmental issue? Managerial problems? Has one group received more frequent raises? All these inquiries can lead to meaningful actions.

However, there are misconceptions about how organizations calculate attrition. Some use oversimplified methods, leading to skewed results, especially during hiring freezes or other unique circumstances.

It's important to understand that while turnover provides some insight, it's a superficial metric compared to attrition. Attrition offers a more in-depth view of an organization's employee landscape, allowing for more actionable insights. The industry needs to move towards prioritizing attrition and retention metrics, analyzed by cohorts, to gain a genuine understanding of their workforce dynamics.

Diving Deeper into Cohorts

When it comes to understanding employee behavior and patterns, I've always been a strong advocate for cohort analysis. It's like looking at the chapters of a book rather than the entire storyline at once. Each chapter—or cohort—has its own narrative, challenges, and outcomes.

Consider this: imagine hiring a group of employees in January, another batch in April, and another in August. Each of these groups, or cohorts, will have unique experiences based on the time of their joining. The January hires might have been onboarded during a peak business phase, the April group during a more relaxed period, and the August hires during a product launch. Each of these experiences will shape their perspective, growth, and possibly their retention within the company.

To illustrate, think of cohorts as puzzle pieces. Each piece, or cohort, is unique and offers a different view. But when you start examining them together, side by side, you begin to see the bigger picture. It's about connecting the dots, understanding patterns, and making informed decisions.

The Real Value of Retention

Retention is a term often thrown around in business discussions, but I believe its depth is sometimes understated. Let's unpack that.

Think of retention as the heartbeat of your organization. It tells you how many of your employees choose to stay with you over time. Now, some might argue that a higher retention rate is always better. But it's crucial to understand the why behind the numbers. If you have high retention, is it because your employees genuinely love their jobs, or are they too afraid to leave due to a lack of better opportunities?

I remember an instance where we were looking at our year-end metrics, and our retention rate was through the roof. On the surface, it looked fantastic. However, a pattern emerged when we dug deeper, segmenting our employees into cohorts based on their joining date.

Those who had joined us during a particularly prosperous phase for the company were our most loyal bunch. They had grown with us, reaped the benefits, and felt a sense of allegiance. On the other hand, a more recent cohort, hired during a challenging phase, had a slightly lower retention rate. This distinction helped us tailor our strategies and interventions for each group.

Here's an analogy I often use to illustrate retention: imagine you're hosting a party. Retention is like seeing how many guests stay until the end. If most of them stick around, you'd think you've thrown a successful party. But the real question is, why did they stay? Was it the music, the company, the food, or just the lack of other options?

Retention is more than just a number. It's a story of experiences, shared journeys, and sometimes missed opportunities. By diving deep into this metric, not just skimming the surface, organizations can truly understand their employees and create environments where they stay and thrive.

Final Thoughts: Why This Matters to You

We've journeyed through the nuances of attrition and turnover together, and I truly hope the distinctions are now crystal clear to you.

But let's zoom out a bit. 

At the heart of every business are people, individuals like you and me, each with unique stories and aspirations. Every metric we've discussed—attrition, turnover, retention—while quantifiable, represents these individual journeys.

Consider this: behind every retention statistic is a tale of mentorship, growth, and a sense of belonging. Each departure, be it counted as turnover or attrition, has its narrative—perhaps a quest for new horizons, a personal change, or the search for a new challenge.

As you navigate the world of business, HR, and people analytics, I urge you to remember this: numbers give us clarity and direction, but it's the stories, emotions, and aspirations behind them that truly matter.

It's about listening, understanding, and responding. By focusing on the human elements behind these metrics, we steer our organizations toward success and foster a community where every voice is heard, and every story is valued. 

After all, it's the passions, ambitions, and relationships that genuinely propel a business forward.

Connect with Joseph.