If you're a small or midsize business (SMB), you depend on a well-trained and dependable workforce; one that is happy in your company and provides you with the skill and production levels that you need. In order to maintain this workforce, you need to measure certain criteria.
One challenge is dealing with employee turnover, which is a time-consuming and costly part of doing business. Calculating your employee turnover rate can help you know what steps you need to take to retain good employees.
Another workforce challenge for SMB owners is maintaining appropriate revenue per employee levels. Just as your employees expect to be valued and treated well, you should expect them to provide a certain level of value to your company, one that you can measure.
By learning to calculate both employee turnover rates and profit per employee, you will be able to improve your business operations and better retain your valuable workforce.
How to calculate employee turnover rates
Employee turnover rate is the percentage of employees who leave a company during a set period of time, such as monthly, quarterly, or annually.
Why it matters
To remain a financially healthy company, you need to retain your workforce. A high turnover rate means you are spending a lot of time finding and training new employees while your current staff shoulders extra duties. Your company’s productivity is compromised, and your business loses value. While every business must absorb some turnover, a high rate indicates that you need to examine the factors driving your employees to leave.
You will need to address two types of employee turnover: voluntary and involuntary. Voluntary is when your employee decides to leave to seek a new opportunity or because they are unhappy with your business. Involuntary turnover refers to employee terminations. A high termination rate is also a cause for reflection. What can you do to help employees who are struggling?
If your company’s turnover rate is high, you need to find out why. Are working conditions not what they should be? Do you lack ongoing training opportunities? Are you paying lower salaries than your competitors? Keeping employees happy generally pays off in higher revenue.
Employee turnover calculation formula
The steps for determining your turnover rate are:
1. Calculate the average number of employees for the chosen time period.
Add the number of employees you had at the beginning of the time period to the number you have at the end and divide by two.
For example, if you had 40 at the beginning of the period and 34 at the end, add 40 and 34, which is 74, and then divide 74 by 2, which is 37. Thirty-seven is your average number of employees.
2. Divide the number of employees who left the company during the designated period by the average number of employees.
If you had 5 employees leave during the period, you would divide 5 by 37, which equals 0.1351351351.
3. Multiple the above sum by 100 to get your turnover rate.
The turnover percentage for our example would be 13.51%.
Since any rate above 10% is considered high, our example company has a retention problem. To increase profitability, management needs to consider how to make employment at the company more desirable.
If you're looking for ways to address your turnover issues, check out these articles on HR initiatives:
How to calculate revenue per employee
You should also consider your revenue per employee rate so you can learn if you are getting enough value from your entire staff. This figure is a helpful indicator of the money each employee brings to the company, but you need to evaluate numerous other factors along with this one to evaluate company productivity.
Why it matters
Revenue per employee is a rough way to determine how much money, on average, each employee generates per month, quarter, or year. If that average number is too low, then you need to look at which departments or individuals are falling behind. Certainly, though, other factors such as employee turnover, the age of your company, company size, and current industry trends affect this calculation. Still, this information is a good starting point for your workforce revenue evaluation.
Revenue per employee formula
To determine this figure:
Divide your company’s total revenue for the chosen period by your current number of employees.
If your annual revenue was 2.5 million dollars and your current number of employees is 20, your revenue per employee rate is $125,000.
Tools to help address workforce issues
In addition to calculating employee turnover rate and revenue per employee, consider using the latest HR software to improve workforce performance and retention.
Both employee monitoring software and employee recognition software can help you improve retention rates and employee productivity.