Calculating Your Turnover Rate Can Tell You More Than You Think

Turnover or employee retention is a funny thing - it happens in every enterprise and is inevitable. Every business owner knows it’s a natural part of operational costs and understands the importance of tracking this rate. As a reminder, to calculate your turnover rate, divide the number of employee departures in one month by the average number of active employees during the same month.

How can businesses use this metric to measure the overall health of their operations? Calculating this number may seem straightforward, but the implications from it can tell you more than you realize. This number can tell you about market trends, ways you can improve your operations, or allow you to compare how you are performing against your competitors.

Employee turnover rate is not as black and white as we’d like and here’s why

While turnover is an accepted fact, it’s not something that stays constant across all industries. This rate can vary higher for certain industries and even businesses. In facts, it’s well-documented that due to the nature of work, industries like Retail, Food Service and Hospitality have some of the highest rates of turnover.  

Occupations within Retail & Consumer Products

Sector with the Highest Turnover Rates

  1. Retail Salesperson 19.3%
  2. Food Serice Profesional 17.6%
  3. Hospitality Professional 17.0%
Source:https://business.linkedin.com

There are many possible causes for this high turnover. The most clear reason, however, is the undeniable fact that the rise of ecommerce and changing consumer expectations have changed the fundamental landscape for industries like Retail, Food Service and Hospitality - the industries with some of the highest rates of turnover.

Consumers are turning to online commerce and away from traditional brick and mortar establishments. This, in turn, affects these businesses who now don’t need as many people on their sales floors, front desks and travel agencies. So now we see traditional workers in these industries leaving these businesses after only a few short months or sometimes weeks, in order to pursue another similar job with more hours, better pay or more stability.

As a result of this sudden proliferation in ecommerce-based businesses, we have also seen the rise of the New Service Economy - the growing group of hourly workers who are forgoing traditional jobs in favor of flexibility.

The bi-product of this new era of flexible workforce is that the need for long-term employees is no longer a deal breaker for businesses. Using a flexible workforce allows operations to continue and even offer new benefits - like being able to higher more people when a sudden, unforeseen spike in demand occurs. It is much easier and faster to hire a large number of hourly workers rather than full-time or even part-time employees.

This doesn’t mean, however, that turnover rates are a thing of the past. It’s important to determine what your average turnover rate is, when does it go up or down, and why you may  be experiencing sudden fluctuations. Questions to ask yourself are:

  • Is my turnover rate standard for my industry?
  • Do I know what the average turnover rate is for my competitors?
  • When does my turnover rate go up and down? Am I able to correlate it with something happening in the market (ex. Seasonal, big holidays, etc)?
  • Are there things happening internally that are affecting this (ex. Insufficient training, worker supply not aligning with market demand, etc)?

Whether you are a seasoned company or new to tracking basic hiring metrics, here is are some of the key things that you should make sure you address when looking at your turnover rate.

Factors that affect turnover

1. Your Industry

Each industry has its own varying turnover rate which has been determined by factors integral to the very industry. In Healthcare, for example, the turnover rate is 30% worse than other industries. Many of the reasons for this are due to the very nature of running and operating a hospital. As an example, the area, size and needs of the population being served can affect the workload for nurses. Additionally, the cost of running a hospital is high and being able to just hire more staff isn’t always an option. As a result, healthcare suffers with higher-than-average turnover.

Learn how Lime overcomes the high rate of turnover that comes with the on-demand industry.

2. You’re not adapting according to the changing landscape

Another variable that is most likely affecting your business is the rise of ecommerce and all the changes that go along with it. Maybe you are a business that delivers spare parts to other businesses or directly to consumers. You may have noticed that your sales have dropped so you are not able to maintain the same staff size you once had. The reality, however, could be that you are losing sales to ecommerce websites that offer the convenience of ordering online and free 2-day shipping. This, in turn, is causing your employees to look for work in other places.

3. External factors

Are you tracking your turnover rate alone? If you are not aware of the external factors affecting your employee retention, then you aren’t tracking changes happening year over year in the marketplace. These can be things like seasonal changes, big holidays or large, local events that bring a sudden influx of people into a region. When you can’t see the big picture, you can’t get ahead of the problem.

The Retail industry, for example, can consistently prepare for things that happen every year such as the holiday season. As a result, Retail businesses can start to ramp up their hiring in September to stay ahead of the incoming demand.  

4. Internal factors

Your turnover rate can also provide a health check on your hiring process. For example, if you are experiencing a high turnover compared to your industry standard, then this is a sign that you need to make improvements in your hiring process, provide better training, or your staff size is not aligning with market demand.

How to successfully hire employees - 12 Fundamental Steps

Next Steps

The important takeaway is that if you are struggling with turnover, this is a sign that you are not adapting fast enough to the New Service Economy. If you can’t see how you compare to your competitors, you won’t be able to make any changes to your operations in order to make improvements. It is important that you arm yourself with the basics of turnover, how to calculate turnover, and what the implications are for your business.

Our recommendation is that you start at the top of your hiring funnel and ensure you are bringing in quality employees who are well-trained. They should be able to get through onboarding quickly and effortlessly. If you are unable to identify your bottlenecks or unsure how you compare to your competition in hiring and turnover, consider getting a free consultation with the Fountain team.

Request a demo to find out how Fountain can make you the employer of choice for the right candidates.

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