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What Is Attrition in Business?

By Kristi Waterworth – Updated Dec 7, 2025 at 2:10 AM EST

Key Points

Attrition means employees leave and aren't replaced; linked to downsizing strategy.
High employee or customer attrition flags potential company problems.
Investors should assess attrition's cause before modifying investments.

When you own a business, large or small, everything requires delicate balancing, including the number of employees. Attrition is one metric that's important to this equation -- and we'll talk about it in the article below.

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Older man on a cell phone leaving an office with personal belongings in a box. — Image source: Getty Images.

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What is attrition?

Attrition is a simple concept in business. It refers to employees who leave and aren't replaced. This might happen because your company's income is shrinking, so you may not need as many employees as before, or specific sections of the business are being eliminated due to a lack of profitability.

There are four main types of attrition:

Voluntary. Voluntary attrition is pretty simple. These are people who have chosen to leave for their own reasons, which may include better offers elsewhere or retirement.
Involuntary. Involuntary attrition occurs when someone is let go and not replaced. They may have been downsized or committed some kind of misconduct.
Internal attrition. Internal attrition occurs when employees are moved to a different position, and their former position is eliminated. They may have gotten a promotion or moved to a different department.
Demographic-related attrition. Demographic-related attrition really requires attention. This is when a group of people who share a demographic, such as age, race, or gender, leave en masse. This can point to serious internal problems with the business.

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Why attrition matters to investors

You might be wondering exactly why you should care about any sort of attrition as an investor.

Attrition can be a pretty strong indicator of problems with the business or an indication that the business is about to change fairly dramatically, especially if attrition is very high. Businesses undergo transformations throughout their lifetimes, but if they're moving a lot of people around, you may find yourself less than comfortable with their future intentions or new projects.

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Marketing

Marketing is a way for companies to reach out and speak directly to their current and future customers, including potential investors.

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Customer attrition is equally problematic because it can indicate a problem with the company's product, product support, or a marketing failure. In any of these instances, serious damage to the company's reputation can occur, which could cause your stocks or other portfolio investments to lose value rapidly.

Any time you notice employee or customer attrition in a company that has some of your investment money, it's important to find out why it's happening. If it's simple growing pains and the stock is still priced well, you may find that a long-term investing mindset will see you and the company through until things improve. However, if it's more serious, like employee discrimination issues, dramatic cost-cutting measures, or a product that has lost quality, you may want to divest your investment entirely.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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