How to Calculate Attrition: Employee Attrition Effect on Valuation for Fire and Security Companies

Employees are vital to your business’ success. Specifically, knowledgeable, loyal, helpful, personable employees.

That’s true no matter what the business, but it’s especially important for alarm companies. Alarm companies rely on sales reps to gain customer trust and earn their business, technicians to keep systems operating and reliable, installers to set things up, and customer service representatives to troubleshoot and solve customer issues. When you have good people in those positions and they stay, the business runs well. When a company has a hard time retaining good employees, it spells trouble.

When you’re looking to sell your company or obtain funding, the quality of your employees and your ability to retain them (or your employee attrition rate) play important roles in your business valuation. This article will review how employee retention impacts business valuation and will show you how to calculate your attrition rate.

Benefits of Employee Retention

Here’s why employee retention matters:

  1. Employee Loyalty
    An employee who genuinely cares about the company is more inclined to do a job well and be a good representative to the customer.
  2. Lower Hiring Costs
    Hiring is costly. Recruiters, training, and sign-on bonuses can add up. Companies save money and time when they keep employees around.
  3. High Skill Levels
    Employees build their skill sets and relevant knowledge over time. This accumulated on-the-job training is more cost-effective than starting over with new employees.
  4. Better Customer Relations
    Customers notice high turnover rates at companies they do business with. In fact, high turnover can cause mistrust. On the flip side, businesses with low attrition rates can benefit from customer loyalty to staff members. Creating rapport with customers boosts repeat sales.
  5. Reputation
    Companies that can keep employees around are often viewed positively. Plus, it boosts a brand’s reputation when employees have good things to say about their company.
  6. Consistency
    Consistency makes it easier for customers and employees to use your products and services. Having the same employees around makes it easier to keep your processes and systems consistent.
  7. Profitability
    Ultimately, retaining employees helps boost profits due to better customer service, reduced hiring costs, and optimized productivity.

Employee Retention Issues that Affect Business Value

Attrition Rate: A company that’s constantly in hiring mode to replace departing employees is seen as a risky investment.

Culture: What is it about a company that makes people stay (beyond salary and benefits). If your company is for sale, buyers will want to know what this is – and whether it will mesh with their own culture.

Training: A strong development program can keep people loyal and engaged. This kind of program adds value, particularly if you can show how it’s linked to employee retention. Cross-training programs are important as well since they build a more resilient employee base and boost employee confidence.

Leadership Potential: Employees who are capable of taking on new challenges are vital to a company’s future.

How to Calculate Attrition

Attrition is the flip side of employee retention. Sometimes called “turnover” or “churn”, it’s the rate at which members of staff leave your workforce over a given period of time.

The formula for calculating attrition is straight-forward. Find the average number of departures in a given period and divide by the average number of employees in that period. Multiply the result by 100 to get the percentage which is your attrition rate.

Put another way: Attrition Rate % = (Number of employees that left during period) ÷ (Average number of employees for period) × 100

What’s a good attrition rate? Some sources say that companies should shoot for a 10% attrition rate. However, what constitutes a ”good” rate varies based on the type of company. For example, companies with highly seasonal employment patterns may have normally higher attrition rates.

We recommend you calculate the rate for your company and consult with AFS about how this will impact business valuation.

Employee Retention Adds Value

If you’re planning to sell your alarm company or if you need funding, having a solid history of employee retention (a low attrition rate) will add value to your company.
If you have questions about your alarm monitoring operation or the financial health of your company, contact Rory Russell at 888-551-0476 or online to get the conversation started today. We wrote the book on selling your security alarm business.

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