Business Attrition: Definition, Types, and Examples
Business attrition is the gradual reduction of employees or customers in a company. It occurs when employees leave and are not replaced, or when customers stop using a company's products or services. Attrition is a natural process in any business, but high attrition rates can negatively impact a company's productivity, morale, and bottom line.
Definition of Business Attrition
Attrition refers to the gradual reduction or dwindling of a thing or item. In business, attrition specifically refers to when a company experiences a loss that a new hire has not replaced. Attrition is often called a hiring freeze and is seen as a less disruptive way to trim the workforce and reduce payroll compared to layoffs.
Types of Business Attrition
There are two main types of business attrition: employee attrition and customer attrition.
Employee Attrition
Employee attrition occurs when employees leave a company and are not replaced. The reasons for employee attrition can be voluntary or involuntary. Voluntary attrition happens when employees resign for personal reasons, while involuntary attrition occurs when the company decides to lay off employees. Other types of employee attrition include retirement, internal transfers, and demographic-specific attrition.
The employee attrition rate is calculated by dividing the number of employees who left (and were not replaced) by the average number of total employees, multiplied by 100. For example, if a company has an average of 250 employees and 25 left without being replaced, the attrition rate would be 10%.
Customer Attrition
Customer attrition, also known as customer churn, refers to the loss of clients or customers. It occurs when customers stop using a company's products or services and are not replaced by new customers. Customer attrition can be voluntary, such as when a customer switches to a competitor, or involuntary, such as when a customer moves away.
The customer attrition rate is calculated similarly to the employee attrition rate. Divide the number of customers lost during a time period by the number of customers at the beginning of that period.
Examples of Business Attrition
Here are some examples of employee and customer attrition:
-
Voluntary employee attrition: An accountant leaves her job because her spouse took a position in another state and the company decides not to replace her.
-
Involuntary employee attrition: A company lays off 10% of its workforce due to financial difficulties and eliminates those positions.
-
Internal employee attrition: An employee transfers from the marketing department to the sales department, leaving a vacancy in marketing.
-
Voluntary customer attrition: A customer switches cell phone providers to get a better deal with a competitor.
-
Involuntary customer attrition: A long-time client of a local business moves to a different city.
Importance of Monitoring Attrition Rates
Maintaining low employee and customer attrition rates is important for business success. High employee attrition can lead to decreased productivity, low morale, and increased hiring and training costs. High customer attrition can result in reduced revenue and market share.
Companies should regularly calculate and analyze their attrition rates to identify potential problems. Some strategies to reduce attrition include:
- Providing competitive compensation and benefits
- Offering opportunities for career growth and development
- Improving management and leadership
- Enhancing the employee and customer experience
- Addressing product/service issues and staying competitive in the market
By understanding the causes of attrition and proactively working to minimize it, businesses can maintain a strong, stable workforce and loyal customer base. While some attrition is normal and expected, keeping attrition rates low is key to long-term business success.