Your Guide on How to Calculate Employee Retention Rate

Losing employees comes with a myriad of problems. Not only has your competition gained a new talent with an in-depth knowledge of your business model, but you’re also losing money in recruitment expenses and reduced productivity, especially when they’re your most productive employees.

In these cases, checking how quickly your employees are leaving (your turnover rate) and why they left (exit interviews) is normal. But, these are reactive measures that address the issue after the fact. 

A company needs to be proactive to compete in any industry successfully. Therefore, it's better to address the problems that send employees packing before they even leave the building. 

This is where your employee retention rate comes in.

Checking your employee retention rates can help you identify likely problem areas and take steps to address them. It also helps you know whether your current retention strategies are effective.

What is a Retention Rate?

Employee retention rate is the percentage of people who remain with your company during a specified time period. It’s usually calculated yearly or quarterly. However, you can use any length of time you wish.

Your retention rate is more than just numbers. It compares how many workers worked for your firm at the beginning of the period to how many of those initial employees remain at the conclusion of the specified term. The retention rate helps you know how employees feel about your business and how you can improve negative sentiment.

How to Calculate Employee Retention Rate?

You will need two significant numbers to calculate your employee retention rate.

• Number of employees at the beginning of a given period
• Remaining number of employees at the end of the same given period

Once you know these figures, follow the formula below:

(Remaining employees during the specified period/ Number of employees at the start of the same period) x 100

Let’s calculate with examples and varying time lengths. 

Example 1

A brewery has 129 employees at the beginning of the year. And at the end of the year, only 87 employees remained.

Starting number of employees: 129

Remaining number: 87

Using the retention rate formula: (87/129) x 100

Retention rate: 67.4% (for that fiscal year)

Example 2

Your marketing agency had 34 employees on April 1st and 29 employees on June 30th. Calculate the retention rate within this period.

Starting number of employees: 34

Remaining number: 29

Using the retention rate formula: (29/34) x 100

Retention rate: 85.2% (for April 1st - June 30th)

Is Retention Rate the Same as Turnover Rate?

No, The employee turnover rate is the percentage of employee exits over a specific time period. On the other hand, the retention rate is the percentage of employees that stay. The formula for calculating turnover is:

(Number of employee exits during the set period / Total average of employees during the set period) x 100

The retention rate for your business is often the inverse of the turnover rate. For instance, if your employee retention rate is 97%, then your turnover rate would be the remaining 3%.

But, this isn’t always the case and is not entirely accurate. Let’s show you why.

Example:

You had 30 employees at the start of a month, they all left, and you hired 30 more. 

Using only the retention rate (30/30) x 100, you might be tricked into thinking you have a 100% retention rate. But your turnover rate will reveal that you’re churning through employees like butter. It’ll be a whopping 100% too!

Clearly, predicting or assuming your turnover rate from your retention rate is flawed. Instead, calculate them separately to give you a better picture of your employee metrics.

What is a Good Employee Retention Rate?

There’s a consensus that your employee retention rate should be 90%. 

However, this may be an inaccurate number, especially if you work in the retail, restaurant, or hospitality industry. These industries record lower retention rates and high turnovers because of the seasonality of their business.

Good employee retention rates are subjective and vary by industry.

You can check gauge how good your retention strategies are by comparing your business turnover rate with the industry average on the U.S. Bureau of Labor Statistics site. Always strive to make your turnover rate lower than the industry standard. 

Why Measure Employee Retention?

The LinkedIn U.S. Workforce Confidence Index (WCI) revealed that 17% of Americans planned to leave their company in 2022. Not an alarming number, is it?

Well, it becomes one when you factor in the cost of replacement. Which, according to Gallup, is half to two times an employee’s annual salary.

Not only are you losing money, but you’re also losing productivity and valuable knowledge. Long-term employees have a wealth of expertise that they’ve built up over time. These employees have cordial relationships with customers, and may even be the reason that client keeps coming back. Losing them might mean losing years of cultivated customer experience.

Low employee retention also affects productivity and morale. When your employees have to adapt to new people while bidding their old friends goodbye, it affects their work. They may lose motivation and avoid engaging in company initiatives.

Eventually, they’ll find their way out too.

Increased employee retention also exposes you to government benefits and relief like the Employee Retention Credit initiative.

How Do You Improve Your Employee Retention Rate?

To retain your top performers, it is critical that you create a workplace where employees are appreciated, empowered, and have room to grow.

A recent Pew Research Center survey found that low pay (63%), lack of advancement opportunities (63%), and disrespect at work (57%), were the top reasons why Americans quit their jobs in 2021. The survey also found that rigid work hours (45%) and poor benefits (43%), also contributed to this mass exit.

In other words, to increase your employee retention rate, you should:

1. Hire well

Take your time with your hiring process. Check if your intended candidate fits your workplace culture and determine what they expect from you. Also, share your expectations from the onset. 

2. Offer good remuneration and benefits 

When you pay your employees well, you show your appreciation for their work. Giving adequate remuneration inspires loyalty and promotes employee engagement. In addition, perks and benefits like paid time off, robust health insurance, mental health resources, and hybrid work help keep your employees devoted to their work and to your brand.

3. Create a comprehensive onboarding process

Your onboarding process is your chance to give a good impression of your workplace culture. It should ease your employees into the job, instead of dumping them into chaos. Use this time to help them forge workplace relations and a roadmap for their future in your company.

4. Recognize and engage your employees

Your employees want to know how they’re contributing to business growth. They need to feel valued. You can fulfill this need through rewards and employee recognition programs like the employee of the month initiative. 

Recognition also takes the form of feedback. Listening to your employees and acting on their feedback is a great way to show that you care. Feedback could come as performance reviews, surveys, and one-on-ones. You can also leverage gamified employee engagement strategies to show how much your employees matter.

5. Provide growth and development opportunities

Employees will leave if you cannot guarantee their growth at your company. A stagnated workplace breeds employee dissatisfaction and is a core driver of turnover rates. By implementing upskilling and coaching programs, you’re telling your employees that they have a future with you. Other developmental opportunities include promotions, mentorship, and networking opportunities.

Retain Your Talent With Assembly

Good retention rates do not happen with the wave of a magic wand. They come from listening to your employees before they leave, and tweaking your existing workplace practices that cause dissatisfaction. 

This doesn’t mean exit interviews are irrelevant. On the contrary, they help us determine if our tweaks worked and what we need to change.

The key takeaway is: Listen. And don’t just listen, act.

And we can help with both. Assembly offers organizations efficient methods to enhance productivity, boost employee engagement, and implement meaningful recognition programs, to increase employee happiness. We also help you gauge employee sentiment and create customized feedback processes for your business.

Chat with an expert today to see how we can improve your employee retention rates.