How To Calculate And Improve Employee Retention Rate

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Are your employees sticking with your company? If they are, then it’s likely you have a high retention rate, which is great. Learn more about how to calculate your retention rate, why retention is important, and how to boost retention for your company. Improving this one metric can make a dramatic difference in your business.

Key Takeaways:

• Employee retention rate is a number that reflects a company’s ability to hold onto their employees.

• Employee retention rates are often calculated several times throughout the year.

• Retaining employees is important because it saves a company time and money while boosting the company’s culture and job satisfaction.

• Employees are concerned about retention rates because they want to work for employers that have a proven track record of job satisfaction.

What Is Employee Retention Rate?

Employee retention is a company’s ability to keep their employees rather than have them leave their job. It can also be defined as having a low turnover rate. Turnover happens anytime an employee leaves their employer, whether it’s voluntary or involuntary.

Employee retention rates are a critical business metric that quantifies a company’s ability to retain its employees. Just as employee turnover rate is the percentage of employees who leave your business in a certain time period, employee retention rate refers to the number of employees that stay with your business in a set timeframe.

How to Calculate Employee Retention Rate

Calculating employee retention rates starts by determining a timeframe to consider. Many companies do it quarterly and also calculate the retention rate annually. Some do it more frequently and have other metrics to consider, such as seasonal employees.

Once you’ve set your timeframe, let’s say annually, using the calendar year, then you’ll need to look at how many people you have employed on January first and how many people have left your company by December 31^st. For instance, you have 100 employees on January 1, and by December 31^st, seven of those employees have left; that’s a turnover of 7% and an employee retention rate of 93%.

Simply put, your retention rate is determined by looking at the number of employees you started with and the number of those same employees who were there at the end of the period. Divide the number who are still there by the number that you started with and multiply that by 100.

Some companies miscalculate their employee retention rate by only looking at how many employees they have on day one and how many there are on the last day of the time period.

If a company of 100 employees lost ten and hired ten to replace them, their retention rate is not 100% even though they still have the same number of employees; their retention rate is 90% because they lost ten of the original employees.

Why Is Employee Retention Important?

Employee retention is a critical metric in today’s business environment. It’s a tool for looking at the health of your organization, the effectiveness of your hiring approach, and the quality of your management team.

If you discover that your company has a low retention rate, you’re likely doing something wrong, and even worse, you’re wasting money and resources constantly hiring and training new employees. You’re also damaging your company’s culture by creating a tenuous atmosphere.

On the other hand, a high retention rate means your employees are happy and want to stay employed with you. When you have the same team for a long period of time, they build trust and cohesion. This can lead to increased productivity, fewer errors and accidents, and higher job satisfaction across the board. It also saves money as you don’t have to hire and train new employees.

Why You Should Work to Improve Employee Retention

There are a significant number of benefits to keeping employee retention rates high.

• Better efficiency

• Greater productivity

• Improved morale

• Lower staffing expenses

• Less training necessary

• Improved customer experience

• Higher revenue and ROI

• Stronger company culture and reputation

• In-depth understanding from employees for greater problem-solving

• More experienced employees

• Strengthened teams

These are just some of the benefits of having high employee retention. If an employee stays with a company for a long time or if a company maintains their staff, then those facts point to a general satisfaction level that can feel contagious and benefit everyone.

How to Improve Employee Retention Rates

If your company can benefit from an improved retention rate, the following tips and techniques might help you do just that.

• Calculate employee retention frequently. Don’t rely on an annual retention rate; opt for quarterly or even monthly calculations to see if there are seasonal influences in your retention.

• Hold exit interviews. Exit interviews can be a very useful tool and can help you determine why an employee is dissatisfied with their job.

• Hold stay interviews. Stay interviews are similar to exit interviews, but instead of asking an employee why they’re leaving, a manager asks them what would make them stay. This can be just as informative as an exit interview, and it can save a working relationship.

• Consider the employee even before you hire them. Craft a hiring policy that gives careful consideration to the ideal candidate and what qualities are needed. Hiring the right employee for the job is a key step.

• Create great training policies. Make sure your employees are onboarded and trained in a way that makes them feel comfortable and confident in the work they’re going to do.

• Spend time working on your management team. Management needs to constantly be working to be the best they can be. This means connecting with individual employees and being able to work with them so everyone is comfortable.

• Look at your compensation and benefits. Are you losing employees to other companies who do the same thing? If your employees are looking for work with the competition, it likely means you’re not giving them what they want.

• Walk the walk. Unfortunately, many companies know what employees want, and they’re happy to say that they have or will provide those things – and then they don’t. If you’re going to talk the talk, you better make sure that your company also walks the walk and follows through.

Overall, a company that has great communication with their employees will understand what employees want, need, and dislike. This knowledge is what shapes great company culture and leads to job satisfaction and high retention rates.

Employee Retention Rate FAQ

1. Is measuring employee retention important for my business?

   Yes, no matter what your business is, measuring your employee retention is critical. Employee retention rates let you know if your employees are happy working for your company or if you have a problem somewhere in the system that is causing people to leave. A high retention rate often leads to significant savings and even improved profits.

2. What if my industry has high seasonal fluctuations? How do I measure employee retention?

   Measuring employee retention rates is more difficult for companies that have seasonal fluctuations, but it’s possible. Many companies create different retention rates for this situation with one being for in-season and one for the off-season. Then comparing in and off-season on a year-over-year basis gives you a better idea of retention.

3. If all of my positions are filled, why does retention rate matter?

   Keeping the same staff year over year can be a great benefit to a business. Continuity of employees leads to improved trust and teamwork, and it can boost efficiency and drop errors and accidents; it can also build morale.

   Another thing to consider is that hiring employees costs money and time, as does the training process.

4. Is retention rate related to turnover rate?

   Yes, retention and turnover rates are often directly related, but there can be some variation. If your company has 100 employees and 25 quit, your retention rate is 75%, and your turnover is 25% if you rehired for those positions.

   Where the variation comes in is if you decide not to fill all of those positions again or if one position has multiple people leave that same job over and over.

Reference

1. SHRM – Turnover and Retention

Author

Kristin Kizer

Kristin Kizer is an award-winning writer, television and documentary producer, and content specialist who has worked on a wide variety of written, broadcast, and electronic publications. A former writer/producer for The Discovery Channel, she is now a freelance writer and delighted to be sharing her talents and time with the wonderful Zippia audience.