What is a “Healthy” Employee Turnover Rate?

Healthy Turnover Rate

With the unemployment rate at 3.7 percent, and the labor force participation rate at 62.9 percent, businesses are finding it challenging to recruit good employees. Competition for the best candidates is intense. Also, the ad industry is not most job candidates’ first pick for careers. We no longer enjoy the glamour of the industry’s hey-day in the 1960s (or even the 1980s), and entry-level salaries lag well below those of other industries. Then there are our dire diversity issues and ongoing struggles to elevate women and people of color to more prominent positions. All of these contribute to concerns about employee retention and turnover at smaller agencies.

An agency principal recently contacted us to ask if there was an industry standard for “healthy” employee turnover. Here is some data to consider.

The Ad Industry’s High Turnover Rates

The Bureau of Labor Statistics stated average voluntary turnover rates across all industries was around 25 percent in 2021. Average turnover varies by industry; lower-wage jobs tend to see higher turnover (25-30%), while stable professional jobs run closer to 8-10 percent (e.g., banking).

The advertising industry average turnover rate is much higher—30 percent, according to an Association of National Advertisers (ANA) report. Talent recruiting and retention were among the five top industry challenges in recent years. Some reasons ad industry employees end up leaving are lack of opportunity for advancement, burnout and wanting to work from home.

The other top reasons for leaving? Fifty percent of people said they wanted more challenging assignments. But 46 percent said they were unhappy with agency leadership. Agencies may also be failing at rewards and recognition—45 percent said they sought more recognition; and an equal number said they hoped for better compensation and benefits.

There are obvious steps you can take to fix some issues, like how you reward productivity and achievement, and whether your salaries/benefits packages are competitive. Workload management can also be a serious issue for employees, who want to be able to do good work, but may be struggling with burdensome workloads and expectations. But first, analyze whether your turnover rate reflects a loss of valuable employees, or less productive people.

Should You Worry About Turnover?

Look at the quality of the employees you are losing, not just how many. If you are losing productive staff or knowledge workers, you may have internal or cultural issues, need to make compensation and benefits more competitive, or need to look closely at whether your best people are given challenging, exciting assignments. If you can’t keep new hires, you may have a middle management issue. If you’re losing less productive workers, that is a benefit; and you have the opportunity to replace them with better candidates who will help you grow your business.

Make sure you are tracking employee productivity. If you are mostly losing low-productivity or not-meeting-expectations employees at about 10% a year, that may be your “ideal turnover rate.”  That is the rate that your business needs to keep moving less valuable employees out the door, and make way for better people.

Turnover is expensive; specifically, you must deal with the cost of recruiting new hires to replace lost workers, training new hires, and the disruption to your business of having to ask other employees to cover for the exiting employee until a new hire is up to speed. There may also be a less-measurable cost in employee morale. Examine your retention strategies and policies for building a “sticky” agency culture and reducing turnover.

As you plan for the coming year, make sure you assess employee information to learn if you need more people, and in which roles; whether current employees are happy and thriving; and whether you’ve struck a good balance between retention and turnover. Every piece of data about your business helps you build a clearer picture of where you are now versus where you hope to be by end of next year, or five years down the road. Human resources planning helps you develop smart recruiting and growth strategies, instead of just reacting when a key employee submits his/her resignation.