Keeping high-performing employees at your organization and committed to their roles is a must if you want to build a healthy, sustainable company. To determine whether your company is doing that, try calculating your employee retention rate: the percentage of employees who stay with your organization during a given period.
Staying on top of your employee retention rate requires gathering data, crunching numbers, and examining what you are (or aren’t) doing to keep your employees happy. But once you understand how to calculate employee retention rate, it’s actually pretty simple, and the benefits to your organization more than make up for the effort.
What Is Employee Retention Rate?
Employee retention is the inverse of employee turnover. So, if employee turnover rate is defined as the percentage of employees who leave your organization during a given time frame, then employee retention rate would be the percentage of employees who stay with your organization during that time. A company struggling with high turnover should invest in initiatives to bolster retention.
“Investing in retention shows that the organization cares…which leads to more innovation, a more engaged workforce, better market share, and higher profits,” said Kathleen Zadroga, a speaker and coach and former HR consultant.
Your staff is the foundation of your company’s success, and in order for your foundation to stay strong, you need to keep your employees committed to their roles and your organization. In other words, you need to maintain a high retention rate. To do that, you have to be able to calculate — and understand — your employee retention rate.
How to Calculate Employee Retention Rate
First, determine what time frame you want to use to measure retention. While some companies measure their retention rate annually, you’ll want to calculate your employee retention rate on a more regular basis to stay on top of retention trends.
“We recommend a monthly calculation to reveal trends, provide an early warning system of potential negative trends, and provide regular feedback on activities and investments being made to increase retention,” said Phil Davis, senior vice president at full-service human resources outsourcing and consulting firm Flex HR.
Once you’ve decided on the period of time you want to focus on, there are two additional data points you’ll need: the number of employees employed on the first day of the set period, and the number of employees who stayed employed through the length of that period. (Note that you shouldn’t include any new hires who started during that time frame as part of this second figure.)
To calculate the retention rate, divide the total number of employees who stayed with your company through the time period by the headcount you started with on day one. Then, multiply that number by 100 to get your employee retention rate. This is expressed as a formula below.
Let’s say you wanted to measure your employee retention rate for the past month. On the first day of the month, you had 30 employees, and on the last day of the month you had 28 employees, as two staff members left to pursue other opportunities. In that scenario, your employee retention rate would be (28/30) x 100, or 93.33%.
Want to give it a try yourself? Use the below calculator to determine your company’s employee retention rate.
Retention Rate Calculator
Why Is Retention Rate Important?
Getting a deeper understanding of employee retention rates can help companies better navigate a variety of situations and make more effective business decisions. “[Understanding retention] rates is useful for workforce planning, project planning, recruiting needs, [and] potential labor shortages within the workforce,” explained Cabot Jaffee, CEO and president of hiring software company AlignMark.
When you understand your company’s retention trends, you can dedicate resources to improving issues with the work environment or employee experience that might be getting in the way of retention. Plus, addressing a low retention rate can save your company from turnover costs.
“Greater employee retention not only avoids costs [associated with employee turnover] but can also yield greater performance and productivity,” noted Davis. “Employee retention is critical to team cohesion — and team cohesion is critical to exceptional team performance.”
When you can get — and keep — your retention rate high, it allows you to focus on the critical parts of your business, instead of constantly having to find, hire, and train new employees. “Competitive retention rates enable management to focus on growth and profitability without the distractions of recruiting and terminating high numbers of employees,” Davis said.
Wondering how your employee retention rate compares to that of other companies? While retention varies by industry and the nature of work being performed, generally, 90% or higher is the ideal range. If your retention metrics are falling well below that threshold, consider implementing some employee retention strategies, as discussed below.
5 Tips to Improve Employee Retention Rate
Here are five tips to help you boost your employee retention rate — and improve the health of your company in the process.
1. Hire the right people.
Employee retention starts with who you hire. To improve your employee retention rate, “make sure you are hiring…the right people for the jobs and the organization,” Davis said.
Before you start interviewing for a position, make sure you’re clear on the role, its responsibilities and required skill sets, and what type of person you’re looking for. When you start interviewing candidates, be sure to take enough time to get to know them and get a sense of whether they’re the right fit for the role, your organization, and the team they’ll be working with. As Davis noted, “The compatibility of teammates matters.”
The individual within the organization who has the biggest impact on retention rates is the person’s immediate manager.
Being deliberate during the hiring process will help you ensure you’re onboarding the right people for your organization. And when it’s the right fit for you both, it will increase the chances that they’ll stay with your organization for years to come.
2. Invest in leaders.
When it comes to improving your employee retention rate, a lot of the responsibility falls on management. “The individual within the organization who has the biggest impact on retention rates is the person’s immediate manager,” noted Jaffee.
If an employee has a manager who trusts and respects them and helps foster their professional development, they’re far more likely to stay with an organization than if they have a manager who micromanages them, treats them poorly, or prevents them from reaching their full potential.
To help increase your employee retention rate, “invest in the selection and training of your supervisors and monitor their impact on their [teams],” Davis advised.
3. Build a values-based culture.
Employees want to feel like their work matters and that they’re part of something bigger than themselves. If your employees don’t feel like your organization has a mission they can get behind, it could lead them to look elsewhere — and cause your retention rate to plummet. According to a 2021 Gartner survey of 3,000 employees, 68% of employees would consider leaving their organization for an employer that takes a stronger stance on cultural and societal issues.
Therefore, if you want to improve employee retention, focus on building a values-based company culture and getting your employees on board with your corporate values and mission. “Make sure your mission is known and understood by all employees,” Davis said. “People like to feel part of a worthwhile endeavor.”
For example, if your company is focused on sustainability, you could send team members quarterly updates on how your organization is lowering its carbon footprint, and schedule regular environmentally focused volunteer opportunities for your team.
When you rally your team around your corporate mission and values, it can give them a deeper sense of purpose at work — and make it more likely that they’ll stay with your organization long-term.
4. Compensate your employees well…
It doesn’t matter how well you do everything else — if you’re not compensating your employees fairly and competitively, you’re going to struggle with retention. Conversely, if you pay your employees well, they’ll be more likely to remain with your organization. According to LinkedIn’s 2020 Global Talent Trends Report, companies that were rated highly on compensation and benefits saw 56% lower attrition, or the rate of employees leaving the company, than their poorly rated competitors.
When determining your compensation strategy, “try to be at or slightly above market,” advised Davis. “Sometimes [having] a position higher or lower than [the market] average may be justified, but be sure that you know where you stand relative to the market — and why you have chosen to compete at that level.”
To make sure you’re offering competitive compensation, compare your pay model to industry benchmarks.
5. …but understand that money isn’t the answer to all your retention problems.
Paying your employees well is important. But if you’re struggling to retain talent, throwing money at the issue isn’t always the solution. You can consider investing more in your company’s total rewards package, which includes everything from benefits to growth opportunities and in-office perks to boost employee satisfaction.
If your employee retention rate is lower than you’d like it to be, talk to your employees and ask for their feedback on what’s working for them, what’s not, and what they need from your company in order to feel more satisfied with their roles.
For example, you might interview employees and find out that their managers aren’t giving them enough praise or recognition. In this case, training your management team on how to deliver encouraging feedback would help improve your retention. Or perhaps, after talking to employees, you discover that your team is struggling with burnout. In this case, implementing policies to help your team create a better work-life balance — like rolling out an employee wellness program — could boost employee morale and retention.
While there’s no denying that compensation is directly tied to retention and turnover, there are a variety of other factors that could be playing into your retention rate. From workplace culture to career development opportunities, many factors contribute to your employees’ decisions to stay or go. To improve your company’s retention, you’ll need to identify and address them.
Retaining top talent is critical for the success of your company. The more employees you keep with your company over the long term, the more you’ll be able to achieve, innovate, and accomplish — both at the team and organizational levels.
Now that you know how to calculate employee retention rate, comparing your rate to industry averages could help you learn where your company stands in terms of retention. From there, you can implement employee retention strategies to minimize voluntary turnover, boost retention, and improve your organization in the process. For a handy breakdown of KPIs, definitions, and industry averages, download our HR Metrics Cheat Sheet.