Are you retaining strong talent in your company? Or are you concerned you’re losing the best people you hire?
The core of a small business is its people. We take a big risk every time we hire. I know this personally —- I’m going through it right now. It’s scary to send money out the door without knowing if it will come back.
But the cost of losing employees or having disengaged employees is so great. Every business owner needs to understand if they are making wise decisions to hire, retain, and develop their teams.
Which leads us to turnover.
A question I get from my clients is:
How do I calculate employee turnover?
It’s a simple formula, but it requires a little probing to get the right measures and decide if the metric is useful for you to track as a business owner or if there are other ways to evaluate the health of your employee retention.
Some turnover is healthy if it is the right turnover (i.e., people are not aligned to the organization’s mission and values or do not have the right skills for the role and there are no other roles available they can fill). However, a high turnover comes at a high cost (both time and money) to recruit, train, acclimate, and close urgent staffing gaps with the higher-cost short-term workforce.
As a small business owner, that means you and your team are spending time getting someone up to speed that could be spent innovating and growing a company.
The formula for calculating employee turnover
The formula for turnover is simple but does not always work for small businesses. Why? Because the denominator is often too small for it to be useful information.
Employee Turnover % = Employees Who Left / Average Employees for Period (Start Count and Finish Count / 2) x 100
Here is an example if you wanted to calculate it monthly:
On October 1: You have 15 employees
On October 31: You had 16 employees
Therefore your average employees are 15.5
Let’s say you had 2 people leave that month
2 divided by 15 = 0.129 x 100 = 12.9%
What measures actually matter in all this
To get to the bottom of what matters for you and retention, you have a set of questions to answer.
What period are you trying to account for?
You cannot compare a monthly number to an annual number, so you need to be intentional about the tracking period.
The smaller you are, the longer a time period you need for the number to be useful; otherwise, you will have large spikes some month with 0% turnover in others.
In fact, if you are a micro-business (<10 employees), a percent is not useful, and I would stick to understanding why each person leaves and what you can learn from it as an organization.
What turnover are you trying to include?
People who choose to leave are considered “voluntary turnover,”
People who do not choose to leave are considered “involuntary.”
Many resources will tell you to focus on voluntary turnover. However, there are important actions you can take when you have high involuntary turnover as well, so I advise my clients to pay attention to both.
What information do you need to track to take action on the number?
A number that is not actionable is just a number. You need to know the main reason why people are leaving (or asked to leave), so you can do something about it. Decide what those key reasons are based on anecdotal information or exit interview you have from past employees.
For voluntary turnover – You want to get at the answer to the following question: “What would have made the difference in you choosing to stay with us?”
For involuntary turnover – You want to ask the question: “What could we have done differently to get the right person, with the right attitude, at the right time, in the right seat?” Learnings can include how you fund, structure, hire people, and lead them to a successful outcome.
Applying this to your specific business stage
For micro-businesses, I recommend that every time someone leaves, you commit as the owner to walking away with one thing you could have done differently than implement it.
For larger small businesses, focus on the areas representing your largest turnover volume, so you get the most impact for your time spent.
Creating an action plan
Understanding the root cause will help to determine what your next steps or mitigating factors should be. Here are some common options to address gaps you may identify.
Mis-hire? Adjust your screening
Get clear on what you need to hire vs. what you can develop, focus on:
Alignment to company purpose, cultures, and values
Abilities in the single most important ownership area in their role
Ability to learn and adapt
Get more diverse inputs:
Add validation steps like a background check.
Add more diversity to the interview team to overcome systemic biases that can cloud the hiring process.
Expectation gap? Adjust your job descriptions and development practices
Improve your job descriptions and screening process to focus on outcomes vs. tasks
Coach your managers on goal-setting and regularly aligning with their team on a clear definition of “what good looks like.”
Skill or work gap? Take a strengths-based approach to development.
Focus on your training programs
Coach your leaders on how to optimize the team’s work based on their strengths
Coach your leaders on how to structure development opportunities to create growth
There are often many opportunities to move work around subtly, so more of your team operates at their best.
Culture or leadership gap? Develop a purpose-based organization
Focus on your organization’s values, mission, and differentiators.
Is everyone in your company and all the work you are doing lining up to those things?
Do you need to do some focused work to develop, hire, and live out those values?
I recently helped clients adjust their performance review practices to integrate values more effectively into their practices and set the expectations on the importance of working in alignment with company values from day one.
Making a difference for you and your employees
Whatever the root cause, there is always something that you, as the leader of a business, can do to improve turnover. It is just a matter of gathering the information and synthesizing it into what will make your organization’s biggest difference.
Want help with improving your employee turnover?
Schedule a virtual coffee, and we can talk through your specific situation and how ACThoughtful can help.
Jenny Erickson grows micro-businesses by getting them from where they are to where they want to be through advice, coaching, and fractional-COO support. Which business are you?