One of the biggest problems companies of all sizes face in the current environment is employee turnover. The COVID-19 pandemic has made many employees reconsider what they want in a job. Some of the issues created by turnover are somewhat tangible, such as the cost of hiring a replacement.
Others, however, are much harder to measure. Loss of institutional memory, for example, where an employee quits and takes the best way to do things with them. Or the cost of lowered productivity while you get a new employee up to speed. New hires are slower, and staff members must take time to explain things to them. No matter how carefully you hire, any new staff member will be unfamiliar with your specific way of doing things.
Turnover also indicates your company's health. It shows that you have created an environment where people want to work. That, in turn, attracts customers, as people care, increasingly, more about employee treatment when deciding where to buy goods and services.
How to Calculate Turnover
The base metric of turnover is a simple one. You calculate turnover by dividing the number of employees leaving by your total number of employees at the beginning of a period.
That calculates the rate at which people leave. However, it does not give a complete picture of your company's health. It also does not exclude employees who leave for reasons that have nothing to do with the job, such as relocation to be closer to family or support a spouse's career. It does allow you to compare your level of turnover with similar companies quickly. Comparing that helps you tell how you are doing. It also enables you to determine whether your turnover problems are related to overall conditions.
If everyone experiences turnover, you need to develop ways to stand out from the crowd and buck the trend. If it is just you, you need to work out what causes your employees to quit and make positive changes to improve turnover, which often starts with improved hiring.
Some industries also tend to have higher turnover than others because of the nature of the work. Demanding industries will go through workers more quickly. Any steps you can take to mitigate this will give you a competitive advantage over other businesses in your industry.
Calculating Average Months on the Job
Average months on the job is a valuable metric that is a little more time-consuming, but not much. You add up the total length of employment for each staff member, then divide that by the total number of staff.
This metric tells you how long an individual stays on average, and it gives you an idea of your company's institutional knowledge. You want the average to be at least nine months, as that is more than the time needed for employees to become productive. It is at the low end of acceptability, and you want that average to grow over time (as you keep employees longer). An average less than that or actively decreasing may indicate that you have a problem, such as high levels of burnout, poor management, or overall dissatisfaction with your business as a place to work.
Ideally, you want the average to be over two years or 24 months, as it shows your staff stays with your company long enough to make an impact. Longer than that shows your company has an above-average ability to retain employees. As a countermeasure, the average tenure for employees in 2021 was only 1.8 years or 21.6 months.
When your employees stick around, you have stronger institutional knowledge. Also, you can build stronger relationships with customers and suppliers or vendors, and it looks good to customers or potential partners in a project. That is particularly important if you work in an industry that relies on long-term relationships with customers. People like having the same rep for an extended period.
Months on the job help you measure turnover and see the impact of turnover and retention on your company's operations and, above all, that vital institutional memory.
Factors to Consider
Average months on the job tell you a lot about your company's health regarding the amount of institutional knowledge you have and give you a picture of employee engagement and satisfaction. It aids your classic turnover metric by adding to the overall picture of your company's health.
However, you should not get hung up on one metric, even as useful as this one. Nothing is definitive. For example, if your company is less than six months old, months on the job are not particularly useful. The newer your company is, the less effective this metric will measure your company's health. It is also less effective if you are in a period of strong growth where you are creating new positions and hiring a higher number of employees simultaneously. Those trends will inevitably bring down the average, but that doesn't mean it's without its uses.
Tracking this metric over time indicates whether you have an upward, stagnant, or downward trend, which is helpful. A dip after adding positions is natural, but you may be churning through employees quickly if the trend doesn't continue upwards. Meanwhile, a stagnant trend may mean steady growth or that there is a cap to how much you can offer employees.
You can work around this by eliminating outliers and looking at department metrics. For example, suppose you hired five new customer service reps because sales are taking off and people are overworked. You can exclude customer service from the metric so that your new hires don't drag down the average or obscure a problem elsewhere.
Tips to Improve Turnover Rates
Companies should do whatever they can to keep good employees, as their knowledge and expertise lays the foundation from which the company grows. Taking steps to strategize how to improve your turnover helps significantly, and you can achieve this better by partnering with a PEO to get their advice and expertise.
Investing in leadership and different management techniques will also help you lower your turnover rate. Great leadership encourages employees to stay because they empower them and create a positive environment. Effective leaders demonstrate empathy and integrity, knowing how to clearly communicate and recognize where their employees need support.
By no means should companies inherently know what they need to do, and they can take steps to learn about their staff. You can conduct internal surveys to measure employee engagement and determine what is working or not working in your company. That will give you insight into what changes you should make to improve retention. Conducting exit interviews with employees who decided to leave could also present an opportunity for more candid discussion of how your company can improve and grow.
Stay Informed to Stay Ahead!
Steady calculations help you determine whether your efforts to reduce turnover work. Months on the job can often be a better metric than traditional turnover measures to help you see the health of your company and understand how much institutional memory you have.
A professional employer organization can help you calculate and compare turnover using these and other metrics. They can then help you make positive changes to improve engagement and retention.