Annualized Turnover Rate: How to Calculate and Lower this Important HR Stat

Business success isn't just about attracting new customers — it's also about keeping your best employees on board. But to keep your top talent, you need to know how many employees are leaving, how often, and why. 

Enter the annualized turnover rate.

This handy metric gives you a bird's eye view of your organization's employee retention. An annualized turnover rate goes a long way toward helping you understand what’s working well within your company. It also points you toward areas that need improvement and what strategies can help you get there.

What Is an Annualized Turnover Rate?

The annualized turnover rate, sometimes called “churn rate,” is a metric that reflects the average number of employees who leave a company within a given time period.

Keeping track of and analyzing your annualized turnover rate provides you with data-driven insights. These insights can help you develop effective strategies to improve employee retention and satisfaction. It allows you to do this by helping you: 

• Identify employee retention patterns
• Adjust hiring strategies
• Evaluate the effectiveness of HR policies
• Developing wellbeing initiatives
• Plan hiring budgets
• Identify other areas that need improvement

How to Calculate Your Annualized Turnover Rate

Calculating the annualized turnover rate may sound complicated, but with the right steps you can gather helpful data quickly and effectively. 

Use the Annualized Turnover Rate Formula

To find your turnover rate using a formula, start by choosing the date range you want to measure. This could be a month, a quarter, a year, or any other period of time. 

Then follow the steps below:

1. Count the number of employees who left the company during that period. This includes voluntary resignations, terminations, retirements, and other forms of separation.
2. Calculate the average number of employees working during that period. You can quickly do this by adding the beginning and ending headcounts and dividing by two.
3. Divide the number of employees who left by the average number of employees, then multiply by 100 to get a percentage.

Written out as a formula, this looks like:

Annual Turnover Rate = Employees That Left / Average Number of Employees

For example, if 10 employees left a company in one year where the average number of employees over time was 100, the annualized turnover rate would be 10%.

Creating a Turnover Rate Calculation Spreadsheet

Another way to determine your churn rate is by using a spreadsheet like Excel. Creating a turnover rate calculation spreadsheet is a bit more involved, but it can help you track more details and produce better insights. You can do this by: 

1. Opening a fresh Excel Workbook.
2. Establish two columns, with the first designated for recording the count of employees who have departed from the company, and the second for noting the average number of employees.
3. Record the number of employees who left the company during each time period in the first column.
4. Enter the average number of employees for each respective period in the second column.
5. In the third column, apply the formula “=A2/B2” to compute the turnover rate.
6. Drag the formula down to extend it to all rows, yielding the turnover rate for each period.

Accurately tracking your rates over time will let you better identify trends and improve employee retention.

To accurately calculate turnover rates, try to:

• Use the same date range for all of your calculations.
• Input reliable data into your sheet.
• Compare the average turnover rates of different departments within your company. 
• Consider the industry average when interpreting your results.

Assesing Your Company’s Turnover Rate

Turnover rates can vary — a lot! — from company to company. By comparing your company’s turnover rate to industry averages, you can better gauge how well your company is retaining employees.

The average turnover rate, across all industries, is about 9%, according to a 2022 Employee Turnover Rates report by Praisidio. But what’s considered a "good" turnover rate between industries. Advertising, for example, has an industry average turnover rate of 8%. Healthcare and software have a much higher average, at 13% and 15% respectively.  

Analyzing the Cause of Your Turnover Rates

Understanding your annualized turnover rate is one thing, but interpreting what's behind that number is the real game-changer. Going the extra mile to understand employee turnover rates can help you create a more productive and motivated workforce.

There are quite a few ways you can dig into what’s driving your churn rates.

Conduct Exit Interviews

An exit interview allows you to get feedback directly from the employees who are leaving your organization. This can help you understand what factors may be contributing to their departures.

Analyze Employee Surveys

Regular employee surveys can provide a wealth of information about employee satisfaction and engagement levels.

Review Work Conditions

Does your workforce have what they need to do their jobs well? Do your workers feel they have the time and support needed to do their best? These can have a heavy influence on worker turnover rates. 

Consider Compensation and Benefits

Are your compensation and benefits packages competitive with similar companies in your industry? You can conduct a market analysis and calculate your compa ratio to find it if you’re not sure. 

Evaluate Opportunities for Growth

Employees are more likely to stay if they see opportunities for career growth and professional development in your organization.

Examine your Employee Wellbeing Initiatives

Does your company provide support for work-life wellness and overall employee wellbeing? Are there steps you can take to improve their work-life wellness?

Tips to Lower Your Annualized Turnover Rate

Every leader knows that understanding the annualized turnover rate is a significant part of the job. But beyond the numbers and calculations, it's about the people who make your organization what it is.

A few human-centered strategies that can help you maintain a healthy turnover rate include:

• Refine your hiring process: If you don’t already, include a culture and values assessment during the interview process. Ask candidates if they resonate with your company's ethos and values, and evaluate if this position supports long-term career goals.
• Nurture employee growth: Offer professional growth and learning opportunities both within your organization as well as through outside institutions or networking events. 
• Foster open communication: Make it explicit to your employees that they work in a judgment-free zone with transparency at the forefront of every interaction. During meetings, everyone should have a turn to speak and be heard.
• Champion work-life wellness: Reward those who participate and advocate for work-life wellness with extra benefits or perks. When possible, encourage staff to take time off to care for their wellbeing. 

In a nutshell, your team's experience within your organization can have a significant impact on your turnover rate. By prioritizing these strategies, you can increase retention and create a more happy and stable work environment. 

Turnover Rates: More Than Just a Number

An annualized turnover rate is more than just a number on a spreadsheet. It’s a story about the people who work at and part from your organization. A high turnover rate indicates there are opportunities to improve your employee experience and satisfaction rates.

One of the easiest ways to boost employee satisfaction is a wellbeing program. Three out of four HR leaders say their wellness program has a significant impact on employee retention. There’s a reason companies that offer Wellhub have seen turnover drop by up to 40%

Our inclusive wellness platform gives distributed and local teams access to thousands of wellness resources. Speak to a Wellbeing Specialist today to get started!

References

• Kluziak, Maria and Loo, Wei Bin. (June 5, 2023). Turnover Rate Calculator. Retrieved July 18, 2023 from https://www.omnicalculator.com/finance/turnover-rate
• How to Calculate Turnover Rate in Excel? Keys Direct. Retrieved July 18, 2023 from https://keys.direct/blogs/blog/how-to-calculate-turnover-rate-in-excel
• Employee Turnover Rates by Industry, Location, & Role in 2022. Praisidio. Retrieved July 18, 2023 from https://www.praisidio.com/turnover-rates