What is Attrition?

While attrition has a variety of definitions within different contexts, here, we’ll discuss the term attrition within a business context. In business, there are two types of attrition: employee attrition and customer attrition. Let’s address both. 

Employee attrition

Employee attrition refers to the shrinking of an employee team, due to the voluntary departure of employees who are not subsequently replaced. Employee attrition differs from employee turnover in these distinct ways: 

• Employee turnover includes employees who depart both under voluntary circumstances and involuntary circumstances; while employee attrition refers only to the decrease of a pool of employees due to voluntary departures (these employees may resign or retire). 
• Employee turnover includes employees who may or may not be replaced, while attrition refers to circumstances in which employees who depart are not replaced, and therefore, the number of total employees decreases.

Attrition is sometimes referred to as “downsizing,” as this is a deliberate (and often slow) method employers may use to cut the employee pool without using terminations or layoffs.

Employee Attrition rate 

The employee attrition rate is the rate at which employees leave the company over a specified period of time. 

How to calculate the employee attrition rate at your company 

To calculate the employee attrition rate, do the following: 

Step 1: Identify the specific period of time for which you wish to calculate the rate (this is typically a year).

Step 2: Determine your average number of employees within your designated time period. To do this, take the total number of employees at the start of the time period, add that to the number of employees at the end of the time period, and divide by 2.

Step 3: Determine the number of employees who departed voluntarily within your designated time frame

Step 4: Take the number of voluntary employee departures, divide it by the average number of employees at your company, and multiply that number by 100 to get the attrition rate:

Number of employees who departed voluntarily / average number of employees x 100 = employee attrition rate 

For example, XYZ company had an average of 500 employees in the year 2022. In that year, 14 employees departed voluntarily and they were not replaced.  14 / 500 x 100 = 2.8 XYZ company has an employee attrition rate of 2.8 percent.

Customer attrition

Customer attrition refers to the shrinking of a company’s customer base and is typically a strong indicator that the business may be in trouble. Customers may leave a company for a variety of reasons including: 

• They are dissatisfied with products or services
• They opt to use competitor products and/or services instead, and/or
• They no longer require the same products and services. 

If your company is experiencing customer attrition, it’s critical to identify and address the causes. 

How to calculate the customer attrition rate

Customer attrition rate is calculated like this:

Step 1: Identify the designated time period (again, a year is typical) 

Step 2: Determine the number of customers you had at the beginning of the time period.

Step 3: Determine the number of customers lost during the time period.

Step 4: Divide the number of lost customers by the number of customers at the beginning of the time period and multiply that number by 100:

Number of lost customers / number of customers at the start of the time period x 100 = customer attrition rate

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