Anytime a good employee leaves your company, you’re bound to feel sad. You may also start to get nervous.
While it’s upsetting to see them go, it’s normal: many employees leave a company each year.
But how do you differentiate a typical turnover from a severe turnover problem?
That’s where calculating your employee retention rate comes in.
What is employee retention rate?
Retention rate is a ratio of the total current employees and the employees at a previous point in time in the same positions at your company. You can calculate it annually or quarterly.
It provides a snapshot of how satisfied your employees are at your company.
A high retention rate indicates your employees enjoy the work they’re doing, fit in with your culture, and receive fair pay.
Conversely, a low retention rate means that one or more of those elements are less than ideal. Since retention rate is inversely related to employee turnover rate, low retention means high turnover.
Knowing your employee retention rate’s status, you can evaluate and adjust your employee retention strategies. When your employee retention rate improves, you know your retention efforts are paying off.
Measuring employee retention rate
To find your organization’s employee retention rate, you need data on the total number of employees with your organization at the beginning of a period and the number of employees who remain at the end. From there, you can quickly calculate your retention rate.
How to calculate employee retention rate
Find how many employees left your company in a period. Subtract that number from your total headcount at the start of the period. Divide the remaining number of employees by the initial headcount. The result should be a decimal. Multiply that number by 100 to find the retention rate in percentage.
Here’s how that looks like in the employee retention formula:
For example, let’s say you want to calculate your annual retention rate.
You started the year with 56 employees and ended with 50 employees. Here’s how you can find the retention rate:
56 – 6 = 50
50/56 = 0.8928
0.89 x 100 = 89
So in this scenario, the retention rate is 89%
Employee retention rate vs. employee turnover rate
Whenever we talk about staff retention rate, it’s also common to hear staff turnover rate. We use them interchangeably because they’re two sides of the same coin.
While retention rate measures how many people stayed, turnover is the measure of how many people left.
Similarly, you might be confused about attrition rate and employee churn rate. They are just other names for turnover rate.
How to calculate employee turnover rate
You can do so by:
- Sum the total employees at the beginning and end of the time interval.
- Divide by two to get the average number of employees.
- Divide the total number of separations for a given time by the average number of employees.
For monthly turnover, you will work with this:
Suppose a company begins the month with 32 employees. Four employees leave, and six new employees join. So the company ends the month with 34 employees.
The average number of employees is:
(32+34)/2 = 33
Next, we find the turnover:
4/33 = 0.1212
Multiplying by 100, the turnover rate is 12%.
What is a good employee retention rate?
A good employee retention rate varies from industry to industry.
Retail and restaurants tend to have lower industry average retention rates than other sectors, while government and federal sectors have the highest retention rates.
The overall market and economy also affect your retention rate. During times of high uncertainty or in a strong talent market, retention may decrease for every industry. For example, turnover in 2020 was 57.3%, making it 20% higher than the previous year.
According to Built In, average retention rates range from 70-90%.
Following this logic, a good retention rate is somewhere above 75%. But for frontline organizations that deal with restaurant and retail, a retention rate above 50% is also decent.
Final thoughts: how to find your employee retention rate
Calculating your employee retention is an important metric while running your business. It can tell you a lot about how your employees feel at your company.
The same is true for turnover rate as that lets you know where the fault lies.
Use both metrics to get a complete picture of your business and employ retention strategies to keep your top talent around.
If you’re looking for a new way to keep your employees engaged, Blink is an all-in-one employee communications app that can help you stay connected to your employees and boost retention.