What is Attrition in Business?
Definition: Customer attrition is a situation where the client’s relationship with the company is ended or lost. In other words, the client stops demanding what the company offers.
What Does Customer Attrition Mean?
This concept of attrition also has an application for labor situations, and it refers to the scenario where employees leave the company under different circumstances. Let’s focus on customer’s attrition. This phenomenon happens due to many different reasons. Customers can leave a company either voluntarily or involuntarily. Voluntary attrition is a situation where the client consciously terminates its relationship with the company.
This type of attrition can be caused by unsatisfactory results obtained from the product or service bought; improper customer service, malfunctions and low-quality perception, among many other different factors that may cause a client to decide not to continue purchasing anything from the company.
On the other hand, involuntary attrition is the situation in which the client’s relationship with the company is stopped due to uncontrollable circumstances. The most common reasons for involuntary attrition are that the customer moves outside of the company’s geographical reach, the client steps out of the company demographic target or the customer’s death.
Example
Mr. Attkins is a 53 years old man that lives in Milwaukee. His daily routines include stopping by a small coffee shop that is close to where he lives and after work he stops by a local bakery on his way home. The company where Mr. Attkins work is relocating him to another city next week and he will be based in that other city for an unknown period of time. To the local bakery and the coffee shop where he used to stop by, what kind of attrition would this be?
According to our concept, customer attrition is a situation where the client’s relationship with a company is ended or lost. Now, Mr. Attkin’s situation would be an involuntary attrition scenario, since the reason these two stores will lose him as a client is beyond his control, in this case, he’s moving out to another city.
What Is the Meaning of Attrition Used in HR?
Attrition is the gradual reduction of a workforce as employees leave or retire. This is usually measured by what is called the attrition rate. Most employers want a low attrition rate because it means that employees are satisfied and they don’t have to train new people.
Rate of Attrition Formula:
Attrition Rate (%) = (Number of leaves ÷ number of employees) x 100
You can see that the rate of attrition is described as a percentage of your total workforce. By tracking attrition rates from one year to the next, you can identify patterns and pinpoint high or low points in employee retention.
Attrition is closely related to employee turnover or churn rate. However, turnover has more to do with the culture that you create within your company and the frequency of hiring and quitting/firing. Attrition is more concerned with the big picture and the numerical change in your workforce.
Attrition in business describes a gradual but deliberate reduction in staff numbers that occurs as employees retire or resign and are not replaced. The term is also sometimes used to describe the loss of customers or clients as they mature beyond a product or company’s target market without being replaced by a younger generation.
- Attrition is a process in which the workforce dwindles at a company, following a period in which a number of people retire or resign, and are not replaced.
- A reduction in staff due to attrition is often called a hiring freeze and is seen as a less disruptive way to trim the workforce and reduce payroll than layoffs.
- Attrition can also refer to a company losing its customer base, often as a result of older customers aging or moving on and fewer newer customers opting in.
Attrition Versus Layoffs
Changes in management, company structure, or other aspects of a company’s operations can cause employees to leave voluntarily, resulting in a higher attrition rate.
Laying off employees results in attrition as long as the company doesn’t immediately hire as many new employees as it laid off. For example, a company might reduce its administrative staff by six in order to create a new internet team of six.
Turnover occurs in a company for many reasons. It can only be called attrition if the company decides not to fill the vacated position.
When a company is faced with a financial crisis, it must make tough calls and cut back its workforce in order to stay afloat. In these cases, the company might implement a layoff with no intention of filling those positions again.
In less drastic cases, such as changes in the company structure or business model or a merger, certain departments are trimmed or eliminated. This usually requires layoffs rather than attrition.
Unlike layoffs, a reduction in staff due to attrition is voluntary. The employee has decided to take a new job, retire, or move to another new city. An attrition policy takes advantage of this inevitable changeover to reduce overall staff.
Why is Attrition Important?
High attrition significantly increases costs to the company. When attrition is high, employers lose a lot of many invested into recruitment, selection, onboarding, employee training etc.
In addition, there is also a cost associated with having positions opened resulting in lower productivity related to attrition.
Causes for Attrition
There are many causes of attrition, but here are a few most common examples of why attrition happens:
- Unfair pay
- Inability to grow and develop careers
- Lack of work-life balance
- Lack of employee recognition and awards
- Poor management
- Poor work conditions
- Lack of benefits
- Other reasons for attrition.
Attrition Can Have Positive Outcomes
Sure, there are costs associated with losing employees, but the tangible costs for workforce planning exist in every area of HR. What you may be more concerned about are the intangible costs of attrition, and even those are manageable. When you approach workforce planning with creativity and attention to workers’ intrinsic needs, you can sustain high morale, job satisfaction and engagement among your employees. If you treat attrition as a negative, it will be.
On the other hand, planning for attrition and successfully managing the cost of attrition happens through open communication, succession planning, employee development and making it clear how much you value employees who have contributed to the company but who are now moving on.