How to Calculate Employee Retention Rate: An Easy Guide

In People and HR teams, one of the essential metrics is always the employee retention rate. In this article, we’ll break down what this rate is, how to calculate it, and why it’s important; on top of that, we’ll give you 6 strategies to try out if you’re looking to improve the retention rate of your organization.

What is the employee retention rate?

Employee retention rate is the percentage of employees who stay in your company during a period of time, usually a quarter or year. Employee retention is the inverse of employee turnover rate, which calculates the percentage of employees who leave the company within that same set period of time.

A good employee retention rate is an indicator that employees are engaged, happy, and satisfied at work, and an engaged workforce contributes to a better work environment, higher motivation, and better business results.

Additionally, when you have a stable and high retention rate, you can focus on improving the company’s bottom line instead of always having to hire and train new hires.

How to calculate your employee retention rate?

When calculating your employee retention rate, start by determining the time frame in which you are measuring the retention. In most cases, companies track retention on a yearly level, but measuring quarterly retention provides you with more granular insights that show trends and seasonality in a more detailed way.

Apart from the time period, you need two more data points: the number of employees you had on the first day of the chosen time period and the number of employees who stayed during that entire time period. In this second figure, you do not include any new hires who joined during that time, for example, during the year.

To calculate the employee retention rate, divide the number of employees who stayed in the company by the number of employees you had on day one. Then, multiply that number by 100.

If you don’t have an employee retention rate calculator, you can always use this retention rate formula:

(Remaining employees during a given time period / Total number of employees at the start of the given time period) x100

For example, let’s say you are measuring the retention rate in the first quarter of a year. On the first day of the quarter, you had 250 employees, and on the last day, you had 235 employees, as 15 of them left during the quarter. In this case, your retention rate would be (235/250) x100, which is 94%. The same principle applies to calculating your annual retention rate.

What’s a good employee retention rate?

Knowing your employee retention rate is important, but you should also have a benchmark or goal you are striving towards. In general, most companies consider employee retention rates of 90% or higher to be a good rate. This also means that the goal is to achieve an employee turnover rate of 10% or less, as everything above 10% is considered a high turnover.

However, some retention statistics show that as many as 30% of new employees quit within their first year on the job. And while some employees will inevitably leave the company to start their own businesses, retire, or just look for better opportunities, a high attrition rate can indicate poor company culture, low work-life balance, high workload, stress, burnout, or bad management practices.

Why employee retention rates are important?

Employee retention is one of the most essential workplace metrics for companies across industries. Retention rates indicate high employee engagement, and engagement impacts motivation, better market share, and higher profits.

Additionally, for companies, it’s much less costly to retain current employees than to find, hire, onboard, and train new team members. Turnover costs are high, and they can hinder the company’s ability to innovate, provide good customer service, and hit business goals.

For HR and People professionals, a low retention rate is a sign that the company does a good job of showing they care for employees, has a good workplace culture, and is on the right track to achieve business goals.

6 Employee Retention Strategies You Should Try

When it comes to employee retention strategies you should try, they boil down to feedback, clear communication, and an eagerness to hear employees out and implement what they need to grow and thrive in their workplace.

Here are the essential strategies every human resources department should have in mind to improve retention:

Design a thorough onboarding (and offboarding) process

Adding new hires to your headcount can often be long and complicated. Every company tries hard to get top talent on board and spends money, time, and resources on hiring them, only to have around a third of them leave within the first year.

On top of that, phenomenons like The Great Resignation brought a new reality where employees switch jobs simply because it pays off more to jump to a new company than stay in their existing one and ask for a raise.

One of the steps that can help companies the most in engaging and retaining new employees is a detailed and thorough onboarding — especially in a globally distributed, remote workplace. Designing a thoughtful onboarding process helps new hires navigate expectations, build relationships with their coworkers, and lets them showcase their skills right away.

Offboarding processes are just as important, as they are an excellent opportunity for companies to get employee feedback and understand why they’re leaving the company. When employees leave, it’s essential to conduct exit interviews and understand the reasons for leaving, especially if the separation is happening within the first year on the job.

Compensate employees fairly

One of the basic pillars of job satisfaction for employees everywhere is their compensation. Even in times of recession, it’s essential to compensate workers fairly, and this includes perks and benefits.

Even if this sounds like an expense, it pays off to compensate workers in a way that keeps employee satisfaction high, as they will be more likely to stay with the company, be devoted to their jobs, and do better work. Try to offer good annual salaries for all positions in the company and top them off with insurance coverage, wellness stipends, flexible workspace offerings, and other benefits.

Emphasize company culture

From an employee perspective, compensation is important, but it’s not everything. Employees care about company culture and core values, and they will vote with their feet if employers disregard those aspects of the workplace.

For example, a dedication to diversity and inclusion is a core value more, and more employees want to see in their organization. So for companies, it means they need to show they care about diversity and are working to implement it in everyday work life.

Additionally, after two years of working through a global pandemic, employees have shown they can do their work without being confined to an office full-time and are willing to switch jobs and accept pay cuts in exchange for workplace flexibility.

Demands like these are a challenge and an opportunity for companies to demonstrate their commitment to employees and get the best talent to stay in the company and remain engaged and motivated

Provide a top-notch employee experience

Employee experience is closely tied to company culture, and it shows how much the company cares about employees and is dedicated to cultivating a happy, engaged workforce. Employee experience is the sum of many parts, including the workplace, communication and transparency, management styles, giving and receiving feedback, wellbeing initiatives, and so much more.

In recent years, employees are focusing on battling burnout, achieving work-life balance, and working flexibly, so you may want to focus on these aspects if you’re looking to provide a better experience to your team and motivate them to stay with the company.

Take feedback often

For HR professionals and team managers, feedback can be a critical component of improving retention rates. This is why employee feedback should become a regular activity in every organization; from 1-on-1 check-in sessions to company-wide engagement surveys, tracking employee sentiment can help you identify the biggest sources of attrition.

Maybe you have a team led by a bad manager whose team is more likely to leave because of poor leadership, or your workplace policies aren’t flexible enough, and your teams want to work remotely. Whatever the problem is, you’re more likely to identify — and fix it — if you have a pulse on how employees feel.

Offer career development opportunities

One of the most effective ways to keep employees in your company is to provide them with learning and professional development opportunities. Think about it — nobody wants to do the same job forever, and people want to know they have a possibility to grow, expand their skill sets, and thrive in a new position.

Learning and development is cost-effective for companies, too, as it is often faster, cheaper, and easier to fill new positions internally and give existing employees a chance to grow in their career paths

A high retention rate means employees are happy

Happy employees are more loyal, highly motivated, eager to learn and grow, and produce better outcomes for their teams and the company as a whole. Start working on improving your employee retention rate as one of the most effective ways to save the company money, achieve business goals, and keep employees with the organization for longer.