The Value of Tracking Turnover—And How to Do It Right

Turnover reports. Let's be honest—they're kind of boring. But, if you want to be a business that's responsive to employees and boasts a great company culture, you need to track your turnover.

People in small business often say, "I don't need to track anything! I know the names of everyone who works here and I can give you a list of everyone who has left, along with their reasons for leaving! Jane left because her husband got a job in Milwaukee. Steve left because a headhunter called him up out of the blue and offered him a raise we couldn't match. Carol left because she wanted to stay home with her kids."

It's easy to think you've got it under control, but let me tell you a secret: People lie about why they're leaving. Jane told her husband to go ahead and take that job in Milwaukee because she hated her manager. Steve was actively looking for a job for two years before he finally landed that one. He would have taken it without the raise. And Carol? Carol actually does want to stay home with her kids, but she intends to do consulting on the side. She would have stayed if you had granted her request for part time.

When you know everyone in your company, you can't always see the big picture. Which means that you don't notice a very obvious thing that a turnover report might tell you—Jane, Steve and Carol all reported directly to Bob. It's time to take a good look at Bob's management skills.

No matter the size of your company, you need to look at turnover in a tactical and analytical way. The first step is to figure out your overall turnover rate.

Turnover is calculated by dividing the number of people who left by your employee population. But it's often more difficult than just doing a bit of division—and it also depends on what type of business you're running.

1) For a stable business: If you're a stable business that is neither growing nor shrinking, you can use the following formula: Number of people who left / current employees. Because you're hiring to replace, it will give you a pretty accurate look at what percentage of your employees are leaving each year.

2) For growing businesses: If you're in a business that is growing by leaps and bounds, you'll underestimate your turnover by using the "stable business" method. For a growing business, it's best to use this formula: Number of employees who left / number of employees at the beginning of the time period.

Why the difference? Well, let's say in January you had 100 employees. By June, 5 of those have quit. But you've been growing by leaps and bounds, and so now you have 200 employees: 5/200=2.5 percent. The reality is, though, that 5 of your original 100 left, so 5/100=5 percent. It's a hugely different number with very different meanings.

3) For a shrinking business: If you use the stable method, you'll overstate your turnover. So, for a company that is losing employees, you'll want to use the same method as a growing business: number of employees who left / number of employees at the beginning of the time period.

You'll want to cut the data across race and gender and departments and look for anything that stands out. You're looking for patterns—but don't panic. I used to do turnover for large grocery store chain and the reports were standardized across all stores. I got a panicked phone call from an HR manager in upstate New York who had 50 percent minority turnover. "What am I doing wrong? This was horrible!" I pointed out that the store only had 2 minority employees, and one had quit.

In other words, the numbers looked frightening, but the reality was that it wasn't a big deal. A little research showed that her county also had less than 4 percent minorities, so it wasn't surprising that her store had a small number of minority employees.

Likewise, if you discover that one department has significantly higher turnover than the others, don't immediately fire the director. She may well need to be fired, but there may be something else going on. Was the department's budget cut? Was there a reorganization demanded by senior management? Was the workload substantially altered? Investigate before reacting.

Not everyone that leaves a company does so because they want to—you may have fired some people as well. But don't pat yourself on the back if you have low voluntary turnover and high involuntary turnover. High involuntary turnover means that you're either making some serious hiring mistakes—you shouldn't have to fire good people—or your management is reacting to small problems by firing. Neither is good and requires investigation.

Looking at your turnover can alert you to problems before they grow too large. You can implement changes in your hiring procedures. You can train you managers. You can look at your salaries and your benefits.

Bottom line—don't disregard the numbers just because you know every person that works and leaves your business. The numbers can show you a new story.

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