what is attrition in business 
the term attrition refers to a gradual but deliberate reduction in staff numbers that occurs as employees leave a company and are not replaced it is commonly used to describe the downsizing of a firm s employee pool by human resources hr professionals in this case downsizing is voluntary where employees either resign or retire and aren t replaced by the company understanding attritionemployee attrition refers to the deliberate downsizing of a company s workforce downsizing happens when employees resign or retire 1 this type of reduction in staff is called a hiring freeze it is one way a company can decrease labor costs without the disruption of layoffs 2there are a number of reasons why employee attrition takes place 2 they include companies may want to consider increasing training opening dialogue with employees and increasing benefits and other perks to help decrease attrition types of attritionvoluntary attrition occurs when employees leave a company of their own volition employees leaving voluntarily may indicate that there are problems at the company or it may mean that people have personal reasons for departing that are unrelated to the business for example some employees voluntarily leave when they get a new job elsewhere they may be moving to a new area which makes the commute impossible they might have decided to try a different career and therefore need a different type of job voluntary attrition can also occur when employees retire this is also referred to as natural attrition unless a company experiences an unusually high rate of early retirements employees retiring shouldn t be a cause for concern for management involuntary attrition occurs when the business dismisses employees this can happen because of an employee s poor or disruptive performance dismissal might be tied to an employee s misconduct companies may have to eliminate an employee s position or they might have to lay off employees due to worrisome economic conditions internal attrition refers to movement out of one department or division and into another the employee isn t leaving the company they re simply making a move within it for instance internal attrition can occur when an employee gets promoted to a different management level or they move laterally to a different section because a job there was more suitable internal attrition can signal that a company offers good opportunities for career growth on the other hand if one department has a high internal attrition rate it may be experiencing problems the company should investigate and address them if need be demographic related attrition results when people identified with certain demographic groups depart a company unexpectedly and quickly these could be women ethnic minorities veterans older employees or those with disabilities such an exodus could mean that employees have encountered some form of harassment or discrimination that should be of concern to all companies because such behavior can undermine a positive workplace environment and successful business operations action should be taken quickly to understand what caused such departures rectifying demographic related attrition is a must because inclusion should be a top goal of every company plus a company can put a halt to the loss of employees of great value and promise diversity training can help while not related to employee attrition it s important that a business also be aware of customer attrition customer attrition happens when a company s customer base begins to shrink 1 the rate of customer attrition is sometimes referred to as the churn rate customer attrition can mean that a company is in trouble and could suffer a loss of revenue customer attrition can take place for a variety of reasons 1in june 2022 4 2 million u s employees voluntarily left their jobs 3benefits of attritionattrition has its positive aspects by its simplest definition it s a natural diminishing of the workforce this can be welcome when the economy is in bad shape or a recession looms and if not for attrition a company would face the prospect of having to lay off employees when it doesn t want to lose them here are other times when attrition might help the attrition ratethe attrition rate is the rate at which people leave a company during a particular period of time it s useful for a business to track attrition rates over time so it can see whether departures are increasing or decreasing a change in the attrition rate can alert management to potential problems within the company that may be causing employee departures the formula for the attrition rate is attrition rate number of departures average number of employees1 x 100say that 25 employees left abc company last year in addition the company had an average of 250 employees for the year 200 300 2 with those figures you can now calculate the attrition rate attrition rate 25 250 x 100attrition rate 0 1 x 100attrition rate 10 1 to calculate the average number of employees add the number that existed at the beginning of the time period to the number that existed at the end of the time period then divide by two by measuring attrition rates a company may pinpoint problems that are causing voluntary attrition that s important because the costs associated with losing valuable employees whom you d like to retain can be staggering for example the cost to hire and train a new employee when one employee voluntarily departs can be one half to two times that employee s annual salary 4company profits can be affected negatively when knowledgeable experienced employees leave and productivity suffers loss of customers can go hand in hand with loss of valued employees that can mean another hit to profits tied to former employees who understood company products and services and how to sell them 4attrition vs layoffssometimes employees choose to leave an existing job to take a new one or because they re retiring an attrition policy takes advantage of such voluntary departures to reduce overall staff laying off employees doesn t involve a voluntary action on the part of the employee however layoffs do result in attrition when a company doesn t immediately hire as many new employees as it laid off 5layoffs occur when a company is faced with a financial crisis and must cut its workforce to stay afloat sometimes due to changes in company structure or a merger certain departments are trimmed or eliminated rather than relying on natural attrition associated with voluntary employee departures this usually requires layoffs attrition vs turnoverturnover takes place in a company s workforce when people leave their job and are replaced by new employees in such instances there is no attrition employee turnover is generally counted within a one year period 6 this loss of talent occurs in a company for many reasons as with voluntary attrition employees may retire relocate find a better job or change their career companies can study turnover to make needed changes 6 for instance many employees leaving within a short period of time probably signals issues within a company that must be dealt with just as with voluntary attrition management can use turnover information to initiate changes that will make the company a more amenable place for new and existing employees 