Sparge water left in the tun results in a loss of efficiency so yes use less water. The total amount of water you needed is 7 gal (desired boil volume) +16 lbs malt * water retained by malt (~0.1 gal/lb) = 8.6 gallons vs 9.375 so you used a fair amount more of water than needed but not enough to explain even half of your efficiency loss.
The other efficiency killer that I see (it sounds like you were batch sparging) is that you should have been able to run out about 4.4 gallons (6 gallons -1.6 gallons retained by the malt) of high gravity 1st runnings, but you ran out only 3.875 gallons before sparging.
So next time, collect more of the first runnings and use less total water. As an aside, I would use less strike water (as low as 1.33 qts water/lb malt) rather than less sparge water.
There could be a whole lot of other reasons for low gravity too such as your thermometer reading high especially when shooting for a low mash temperature, grains that aren't crushed by the mill, & not properly mixed mashes (dough balls). I hope that helps.