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In today's dynamic business world, it is of paramount importance for companies to closely monitor the turnover rate of their employees. Why The days when employees remained loyal to their employers for a lifetime are long gone. More and more employees, even those who are generally satisfied with their job, are considering a career change. In fact 38% of German workers are planning to change jobs in the next six months! That shows a Work satisfaction study 2023 by AVANTGARDE Experts.
But what exactly is behind a high fluctuation rate and how can you calculate it in order to save costs in particular? High turnover causes significant costs due to recruitment, training and loss of knowledge. By calculating and analyzing the turnover rate, you can take targeted measures to reduce these costs.
However, it's important to note that employee turnover isn't inherently bad. While many companies want to reduce high turnover to ensure stability, others are deliberately seeking higher turnover to encourage new input and innovation. It is therefore crucial to find the optimal fluctuation rate for your company and to manage it accordingly.
In this article, you'll learn how to precisely calculate the turnover rate for your company. We'll explain the basic formula, provide practical examples and give you valuable tips on how you can effectively reduce fluctuation. In addition, we provide you with a handy template for you to download, which you can easily use to calculate your fluctuation rate. Whether you're an experienced HR professional or entrepreneur who wants to better understand the dynamics of your team, this guide will help you make well-founded decisions and ensure the long-term stability of your business.
What is the turnover rate and why is it relevant to you?
Die Employee turnover indicates how many employees leave the company in relation to the total number of employees per year have. This key figure includes those who have resigned, have been transferred internally, and have retired. Disproportionately high employee turnover usually indicates weaknesses in employee retention, which can be caused by various reasons such as unfavorable working conditions, lack of development opportunities or unclear career prospects.
However, too low a fluctuation rate can also be problematic, as it can indicate a lack of dynamism and fresh ideas in the company. If employees stay in the same positions for too long, this can lead to stagnation and a lack of innovation.
It is therefore crucial to analyse employee turnover in detail in order to identify potential problems and take targeted measures to improve working conditions and employee satisfaction.
Why are your employees leaving your company?
A high turnover rate can be triggered by various factors that are deeply rooted in the dynamics of a company. Several causes often play a role at the same time:
Inadequate development opportunities: If employees feel that their professional development is stagnating or not being promoted, they may be looking for new challenges outside the company.
Lack of employee retention: Low employee retention can be caused by a lack of appreciation or inadequate communication on the part of company management.
Unfavorable working conditions: Work environments that cause stress, affect personal health, or do not align with their values and expectations can cause them to leave the company.
Unsuitable corporate culture: A corporate culture that does not match the values and expectations of employees can have a negative impact on team satisfaction and commitment.
By identifying and understanding the specific causes of their high turnover rate, companies can take targeted measures to address them and strengthen employee retention and satisfaction in the long term.
How can you calculate the turnover rate?
There are several methods to calculate employee turnover, which can be used both for individual departments and for the entire company, including the BDA formula and the Schlüter formula, which are the most commonly used.
The BDA formula for calculating the turnover rate
A common way to calculate the fluctuation rate is the BDA formula, which is derived from Federal Association of German Employer Associations (BDA) is propagated. This formula classically relates departures to the average headcount.
The BDA formula is:
The Schlüter formula for calculating the turnover rate
In addition to the BDA formula, there are also other methods for calculating the turnover rate. Another commonly used method is the Schlüter formula. This does not use the average headcount, but takes into account the headcount at the beginning of the period under consideration, supplemented by the new employees. This formula takes into account that the headcount is a snapshot. Employee departures, on the other hand, are considered over the entire period.
The Schlüter formula is:
Our recommendation is to use the Schlüter formula, as it is more accurate.
How can you interpret the turnover rate — what is good and what is bad?
Now that you know how to calculate the turnover rate, it's important to also understand how to interpret this number correctly. A high or low turnover rate alone does not automatically provide information about the quality of employee retention or working conditions in your company. The significance of the turnover rate depends heavily on the context and specific circumstances of your company.
What does a high turnover rate mean?
A high turnover rate can mean a variety of things. If the company's overall turnover rate is above average minus natural turnover, this could indicate difficulties in the company's dealings with its employees. This situation could indicate serious problems within the company, such as inadequate working conditions, lack of recognition or lack of career opportunities. Frequent employee changes can result in high recruitment and training costs and mean the loss of important knowledge, which could affect the continuity and performance of the company. It is crucial to analyse the reasons for this high fluctuation and to take targeted measures to remedy the causes.
What does a low turnover rate mean?
On the other hand, a low turnover rate can be a sign of a stable and committed team. This can be positive if it points to a high level of employee satisfaction and a strong commitment to the company. However, too low fluctuation can also indicate a lack of dynamism, especially when there is a lack of fresh ideas and new perspectives in the company. In such cases, it may make sense to specifically recruit new talent and promote innovation to ensure that the company remains competitive and continues to develop.
How can you reduce the turnover rate in your company?
To effectively reduce the turnover rate in your company and ensure long-term stability, we have four valuable tips for you:
1. Efficient onboarding program
A well-structured onboarding program is crucial for the success of new employees. Make sure that new team members are fully informed about their tasks, business goals, and culture. Effective onboarding not only promotes rapid acclimatization, but also strengthens the loyalty and satisfaction of new members right from the start.
2. Continuing education opportunities
Offer continuous training opportunities to your employees. This shows that you support and promote their professional development. Training, workshops and mentoring programs help to expand skills and improve their career opportunities within the company. This increases satisfaction and reduces the likelihood that they will leave the company.
3. Promoting a positive corporate culture
A positive and supportive corporate culture is a key factor for employee retention. Promote a work environment that is characterized by appreciation, open communication and a good work-life balance. Regular feedback rounds and team events can strengthen the sense of belonging and increase employee motivation.
If you are interested in how talentsconnect shapes a culture that is characterized by trust and a positive error culture, feel free to read in our Culture Book pure.
4. Preboarding to avoid early turnover
Implement a structured preboarding program to integrate new employees into the company even before they officially start. This may include giving them information about the company, team structures, and initial tasks. Such an approach helps to minimize the first few weeks of uncertainty and potential frustration, which reduces early turnover and strengthens long-term commitment.
At talentsconnect, we offer an ideal solution for this with our preboarding module, which makes it easier to identify new employees and shortens the onboarding phase. You can find out more about this in this one-pager.
5. Internal job market and career opportunities
Another important point is the creation of an internal job market. This enables employees to explore career options within the company instead of looking around externally. This is particularly relevant for companies with different locations, as employees who move often do not know that there are also vacancies at other company locations. With a highly visible internal job market, you can prevent talented employees from quitting due to a move and at the same time promote their career development within the company.
With talentsconnect to a positive turnover rate
If you want to understand the turnover rate in your company more precisely and improve it in a targeted manner, we offer a comprehensive auditing on. In doing so, we analyse your company's turnover rate in detail, evaluate it against industry-specific benchmarks and develop personalized, concrete recommendations for action. Our goal is to identify specific causes of a potentially high fluctuation rate and to recommend tailor-made strategies to address them.
Through this precise analysis and targeted measures, you can not only reduce the turnover rate, but also create long-term employee loyalty and a more stable working environment. If you are interested in such an individual audit, then Book an audit here.
What does it cost you not to fill a position?
In addition to reducing fluctuation, it is also important to Effects of vacant positions to consider your company. Vacant positions can cause significant financial damage, as they not only mean direct sales losses, but can also affect team dynamics and productivity. Even if salary savings are made in the short term, the loss of turnover can be significant, as each position brings in a multiple of the wage costs in turnover. The lack of personnel therefore often leads to significant financial losses that go far beyond the saved salaries.
The cost of vacation formula
You can calculate the loss of turnover using the Cost of Vacation formula. However, this is based on two constants: Every employee is a top performer and every employee is also directly onboarded on the first day. Since both are often not the case, the actual loss of revenue can be significantly higher.
To use the Cost of Vacation formula correctly, it is important to understand the following variables:
The value factor
The value factor describes the “added value” that a position generates. A value factor of “1" corresponds exactly to wage costs (excluding additional costs). A position only makes sense with a value factor of “1.2” (due to ancillary costs). The higher the value factor, the more direct is the revenue share of a position. For example, if a sales representative is missing, this is directly reflected in sales (therefore high VF), if a financial accountant is missing, this is more indirectly noticeable in sales (therefore lower VF). But that does NOT mean that the company does not need financial accountants. It simply means that the loss of revenue is lower in the short term.
Time to Fill
In addition to the value factor, time to fill is also a decisive variable. In this context, time to fill means the time from the job posting to the new employee's first working day. This period of time directly influences the loss of turnover, as the longer a position remains vacant, the greater the financial loss for the company.
We have one for you free template created, with which you can calculate your costs. You can easily download it below.
Other relevant resources:
blog articles: The first 100 days: How to retain employees with good onboarding
podcast: Best practices for a strong corporate culture
White paper: Direct to Talent — a revolutionary recruiting strategy
