The Turnover Rate: a key figure for measuring employee retention

What is the turnover rate?

The turnover rate refers to the rate at which employees leave an organization and are replaced by new employees.

It is often expressed as a percentage and measures the extent of employee movement within a given period, usually a year. 

A high turnover rate can indicate problems such as unhappy employees, lack of job security or ineffective personnel management practices. 

Companies often try to keep turnover rates low, as high turnover can have costs, both financially and in terms of productivity and work climate.

Why is the turnover rate important?

The turnover rate is an essential measure for organizations as it provides insight into stability, efficiency and work climate. 

A high turnover rate can indicate various issues affecting the organization, such as employee dissatisfaction, lack of job security or ineffective human resource management practices.

First of all, high turnover rates can result in significant costs. Onboarding new employees is a costly process that requires time and resources. 

In addition, losing experienced employees can lead to a loss of productivity, as new employees need time to familiarize themselves with their roles.

Furthermore, a high turnover rate affects the working atmosphere.

Employees who come and go frequently can affect trust and stability within the team. 

This in turn can lead to lower employee satisfaction and increased stress levels, which can have a negative impact on performance and commitment.

Continuous employee turnover can also disrupt the continuity of projects and processes. 

New employees need time to familiarize themselves with their roles and acquire the necessary knowledge and skills to work effectively. During this induction phase, productivity can drop and the quality of work can be affected.

In addition, a high turnover rate can affect a company’s image and reputation. 

Potential applicants may be put off by a high employee turnover rate as they may interpret this as a sign of internal problems or an unattractive working environment.

Overall, the turnover rate is an important indicator of a company’s health and performance. 

Companies must actively seek to keep turnover low by identifying root causes and taking steps to improve the work environment, strengthen employee retention and promote a positive company culture.

What forms of fluctuation are there?

1. Natural turnover

This form of turnover occurs when employees leave the organization for personal reasons, such as retirement, relocation to another city or country, or changes in personal circumstances.

This type of turnover is often unavoidable and cannot be directly controlled by the organization.

2. Involuntary turnover

This refers to situations where employees have to leave the organization because they have been made redundant or because their contracts have not been renewed.

This form of turnover can be due to various factors, including economic difficulties of the company, mismatch between employee and position or performance issues.

3. Voluntary turnover

Here, employees leave the organization of their own volition, often due to dissatisfaction, career opportunities at other companies or the search for new challenges.

Voluntary turnover can be influenced by various internal and external factors, such as work culture, remuneration and development opportunities.

4. Seasonal turnover

Some industries or companies may experience seasonal fluctuations in employee turnover.

This may be due to seasonal employment contracts or seasonal needs of the organization that result in a temporary increase or decrease in the number of employees.

5. Industry or career change

Sometimes employees leave an organization to move to a different industry or to pursue a new career direction.

This can be due to changes in employees’ personal goals and interests as well as external trends and developments in certain industries.

What are the reasons for employee turnover?

he reasons for employee turnover can be varied and often depend on individual, organizational and external factors. Some common reasons are:

1. Job dissatisfaction

Employees may leave the organization if they are dissatisfied with their work environment, tasks or management.

This can be due to a poor work culture, workplace conflict, lack of appreciation or unclear career prospects.

2. Better career opportunities

Employees are often looking for new professional challenges that offer them better opportunities for promotion and development.

If they feel that their current positions do not offer opportunities for career growth, they may decide to make a change.

3. Job security

Insecure working conditions such as frequent reorganizations, company financial problems or fear of layoffs may cause employees to look for more secure employment opportunities.

4. Compensation and benefits

Inadequate compensation, lack of benefits or unattractive working conditions may cause employees to leave the organization for better compensation and benefits.

5. Working conditions and work-life balance

Excessive stress, long working hours, lack of flexibility or lack of support in balancing work and private life can lead employees to look for an employer that better meets their needs.

6. Leadership and management

Poor management, unclear communication, lack of support and lack of recognition from managers can affect employee engagement and lead to an increased turnover trend.

7. Cultural fit

If the corporate culture does not match an employee’s values and expectations, this can lead to dissatisfaction and ultimately the decision to leave the organization.

8. External factors

External factors such as location, commuting distance, family commitments or changes in life situation can also influence an employee’s decision to leave the organization.

These and other reasons can occur individually or in combination and vary depending on the industry, company and individual circumstances. 

It is important for organizations to understand these reasons and take appropriate measures to strengthen employee retention and minimize turnover.

How is the turnover rate calculated?

The turnover rate is usually calculated as a percentage and relates the number of employees who have left an organization in a given period to the average total number of employees in that period. 

The general formula for calculating the turnover rate is as follows:

To determine the number of employees who have left the organization, all employees who left the organization during the period under review are counted. 

The average total number of employees can be calculated either as the average of the number of employees at the beginning and end of the period or as the average of the number of employees for each month of the period under review.

Example: 

Suppose an organization had 100 employees at the beginning of the year and 110 employees at the end of the year. During the year, a total of 20 employees left the organization. The turnover rate for this year would be calculated as follows:

The fluctuation rate for this year is therefore approximately 19.05 %. This figure indicates that around 19.05 % of the total workforce left the organization in the period under review.

In addition to this general formula, there are other formulas such as the ZVEI or Schlüter formula for calculating the turnover rate.

What is a good turnover rate?

A “good” turnover rate is one that is in line with an organization’s goals and context. 

There is no universal standard rate that can be considered ideal for all companies, as the optimal turnover rate depends on various factors, including the industry, company size, regional labor market conditions and the company’s strategic goals.

In general, however, a low turnover rate is often considered positive, as it can indicate that employees are satisfied, identify with the organization and remain with the company for the long term. 

A low turnover rate can also signal stability and continuity in the organization, which can have a positive effect on productivity, efficiency and the working atmosphere.

However, too low a turnover rate can also be a sign of problems such as a lack of innovation, diversity or adaptability. 

In some cases, some turnover can be healthy, as it allows an organization to bring in new ideas and talent and adapt to changes in the environment.

On the other hand, an excessively high turnover rate can indicate problems such as employee dissatisfaction, poor leadership or workplace issues and can result in significant costs to the organization, including onboarding and recruitment costs as well as lost productivity.

Ultimately, the turnover rate should be seen as a tool to continuously improve employee retention and the working environment. 

By taking a proactive approach, organizations can build long-term relationships with their employees and strengthen their competitiveness.

Which methods help to reduce the fluctuation rate?

Method 1: Attractive working conditions

Offer appropriate salaries, additional benefits such as flexible working hours, home office options and a positive working environment.

Method 2: Employee development

Invest in the professional development of your employees through training, further education and career opportunities within the company.

Method 3: Employee Retention Methods

Implement employee retention programs such as mentoring, employee surveys, performance recognition and employee feedback.

Employee surveys in particular offer a valuable opportunity to promote employee engagement and satisfaction and to better understand their needs. Through regular feedback, targeted measures can be taken to improve the working environment and corporate culture.

Method 4: Communication

Encourage an open and transparent communication culture where employees can voice their concerns, ideas and worries.

Method 5: Job satisfaction

Make sure your employees feel valued by recognizing their achievements, taking their opinions into account and creating a positive work environment.

Method 6: Health promotion

Offer programs to promote the health and well-being of your employees to reduce stress and improve work-life balance.

Conclusion: Measuring employee retention with the turnover rate

In conclusion, I would like to take the opportunity once again to emphasize why the turnover rate is an important metric for measuring employee retention.

The turnover rate is a critical metric for organizations to assess employee retention and the health of the work environment. 

It provides insight into the stability and attractiveness of the employer and the effectiveness of HR management. 

By closely analyzing the turnover rate, companies can recognize patterns, identify potential problem areas and take appropriate action to strengthen employee retention and reduce turnover.

It is important to note that a “good” turnover rate is highly dependent on various factors, including industry, company size, local labor market conditions and individual company goals. 

In some industries or companies, higher turnover rates may be common, while in others, lower rates may be targeted.

Nevertheless, a “good” turnover rate is usually one that is in line with the company’s goals and strategy and shows that employees are committed and satisfied in the long term. 

It should also be compared to industry benchmarks and historical data to identify and understand trends.

Ultimately, the turnover rate should be viewed as a tool to continuously improve employee retention and the work environment. 

By taking a proactive approach, organizations can build long-term relationships with their employees and strengthen their competitiveness.