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How Much Turnover Is OK?

It's only natural you'll lose some employees now and then. Here's how to determine whether turnover is helping or hurting your business.

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Q: I am the owner of a midsized sales and marketing company that I started with my own funds five years ago. We've grown a lot since then, and most of my employees seem happy. But even though we are in an economic downturn, I have been losing a fair number of employees the past year or so. How many employees can I realistically expect to lose in an average year without beginning to worry?

A: You ask a fascinating question that many entrepreneurs are concerned with. No one can predict how many people will leave in any given time frame, but I can lead you to your own decision as to whether your company's turnover level is helpful or detrimental to your business success.

Whenever employees leave or separate from a company, you usually hear a large variety of reactions and responses. Some will say, "I can't believe that she left. We'll be lost without her," while still others will say, "I'm glad she left or was fired. She was a real problem employee!"

When an effective or productive employee leaves, we call that "dysfunctional" turnover because the departure actually is not in the best interests of the company. On the other hand, when a nonproductive or ineffective employee leaves, we call that "functional" turnover because the loss is in the best interests of the company.

Therefore, the key question for you to ask is if the employees who separate from your company actually represent a loss or a benefit to you. Fortune magazine's 100 Best Companies estimate that between 12 and 18 percent of their employees turn over each year. Are those figures high or low? The answer is, it depends on if the departures are functional or dysfunctional to the overall operation.

So, how can you determine the best answer for you and your company?

First, begin by looking at which employees in which section of your company are leaving. Next, examine their exit interviews to determine if there is a common theme to the reasons for their departures. However, because of the caveat "Don't burn your bridges," many exiting employees are reluctant to state the true reasons for their turnover. Third, look at potential conflicts in the work environment. These can be unresolved or seemingly unknown conflicts between co-workers and/or employees and their supervisors. Conflicts between unmet expectations from supervisors and/or employees, unmet work rewards, gratification, promotion, salary, recognition and status are yet other sources of dissatisfaction and turnover. Are your employees committed to their tasks? Can they identify with them and with the company's processes, goals and mission? Is "the way work gets done around here" appealing to your employees, or do they feel either left out or not a part of the group, or otherwise discontent?

Another major question to ask yourself is, "Was I aware of these issues?" If not, your immediate next steps are obvious: Get out there, create closer contact with your employees and find out what motivates them and what discourages them. Discover what their challenges, strengths and limitations are and how your policies and processes assist or hinder the well-intentioned employee. Whatever you do, make sure they know and believe that you and your managers are concerned with employee well-being and satisfaction. Then, make sure they know that you are also interested in their productivity and effectiveness. In that way, everyone wins and turnover decreases.

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