Imagine losing nearly half of your workforce every year. Sounds alarming, right? Yet, according to the U.S. Bureau of Labor Statistics, an average of 47% of employees leave their jobs annually.
High turnover doesn’t just cost money—it disrupts productivity, weakens team morale, and slows business growth. Retaining top talent isn’t just a goal for companies today, it’s a necessity. Companies that prioritize employee retention build stronger, more engaged, and more successful teams.
In this blog, we’ll break down how to calculate employee retention rate, why it matters, and the best strategies to keep your top performers for the long haul.
What Is Employee Retention Rate?
Employee retention rate is a key metric that measures an organization’s ability to retain its employees over a specific period. It is often used to assess workplace stability, employee satisfaction, and overall company culture.
A high retention rate indicates that employees are staying with the company, while a low rate may suggest high turnover and potential workplace issues. Companies with strong engagement programs have a staff retention rate of 87%, compared to 75% for those without.
How to Calculate Employee Retention Rate: 4-Step Guide
A good employee retention rate means your employees are staying with your company for a long time. But how do you measure it? Here’s a simple way to do it in five easy steps.
Step 1: Understand the Retention Rate Formula
The retention rate formula helps you know the percentage of employees who stay with your company over a given period.
This formula excludes new hires because they weren’t present at the beginning of the period.
Step 2: Gather Your Data
To calculate the retention rate, you need three key numbers:
- Employees at the start of the period
- Employees at the end of the period
- New hires during the period
Step 3: Plug in the Numbers
Let’s say a company wants to measure its retention for the past year:
| Description | Number |
| Employees at Start of Year | 200 |
| Employees at End of Year | 190 |
| New Hires During the Year | 30 |
Using the retention rate formula:
(190−30÷200)×100 = (160÷200)×100=80%
So, the company’s employee retention rate is 80%.
Step 4: Analyze the Results
A retention rate above 80% is generally considered good. If it's below 70%, it may indicate high turnover, requiring improvements in employee satisfaction and engagement
How Employee Retention Rates Impact Your Business?
Here are 6 key reasons highlighting the importance of the company’s retention rate for your business:
Reduced Company Costs
Employee replacement can be a significant financial burden. Studies indicate that the cost of replacing an individual employee ranges from one-half to two times their annual salary. For instance, replacing an employee earning $60,000 annually could cost between $30,000 and $120,000.
Helps in Addressing Recruiting Issues
Retention metrics can highlight departments or roles with higher turnover rates. Identifying these areas allows organizations to proactively address underlying issues, such as inadequate training or mismatched job expectations, thereby improving retention. These patterns enable targeted interventions to enhance employee satisfaction and reduce turnover.
Improved Employee Engagement
Monitoring retention rates provides insights into employee engagement levels. High retention often correlates with a positive organizational culture, elevated morale, and effective team dynamics.
Engaged employees are more likely to stay, reducing turnover. A study found that engaged employees are 87% less likely to leave their organizations.
Enhanced Customer Satisfaction
Experienced employees possess in-depth product knowledge and have established customer relationships, leading to improved service quality. High employee turnover can disrupt these relationships, negatively impacting customer satisfaction.
Companies with engaged employees often experience higher customer satisfaction rates, as consistent service fosters customer loyalty.
Increasing Employee Productivity
Tenured employees often exhibit higher productivity levels. Their familiarity with company processes and established networks enables them to perform tasks more efficiently.
Conversely, high turnover disrupts continuity, leading to decreased productivity. Engaged employees are more productive, with research indicating that offices with high employee engagement are up to 43% more productive.
Strengthened Organizational Knowledge
Long-term employees accumulate valuable institutional knowledge, contributing to innovation and efficiency. High retention ensures this expertise remains within the company, reducing the learning curve for new projects and maintaining operational stability. Preserving organizational knowledge through employee retention is vital for sustained success.
By closely monitoring and understanding retention rates, companies can implement targeted strategies to improve employee satisfaction, reduce turnover costs, and enhance overall organizational effectiveness.
What Is a Good Employee Retention Rate?
An employee retention rate of 90% or higher is generally advisable, and a turnover rate of 10% or less is also recommended. In 2022, the average turnover rate was approximately 9.3%, though this figure can vary depending on industry, location, and job type.
Sectors such as government, finance, insurance, and education often experience higher retention rates. In contrast, industries like food service, retail, and hospitality tend to have lower rates.
It's important to note that an exceptionally high retention rate, such as 99%, isn't always ideal. Some levels of turnover can be beneficial, providing opportunities for high-performing employees to advance and allowing the infusion of new talent into the organization.
Additionally, you should manage involuntary turnover by letting go of underperforming employees to enhance overall productivity and efficiency.
5 Tips to Improve Employee Retention Rate
Apart from being a basic metric, retention rate is a key driver of business success. Here are 5 tips HRs can use to increase employee retention at their organization:
1. Build a Positive Company Culture
Employee satisfaction and loyalty are important for cultivating a supportive and inclusive workplace. For example, companies like SAS Institute have created a culture that emphasizes employee well-being by offering on-site healthcare, flexible working hours, and opportunities for continuous learning.
This approach has resulted in a remarkably low turnover rate of approximately 3-5%, significantly below the industry average of 20-25%.
2. Offer Competitive Compensation and Benefits
To attract and retain top talents providing remuneration that meets or exceeds industry standards is crucial. Beyond base salaries, incorporating unique benefits can make a significant difference.
For instance, some companies have introduced "pawternity" leave, allowing employees time off to care for new pets, which has been well-received and has contributed to increased employee satisfaction.
3. Focus on Professional Development
Extra training and development programs boost employee skills and support their career progression.
For example, Blackstone has implemented an internal Data Center Academy to train candidates for specialized technical roles, addressing talent shortages and providing clear career pathways.
4. Recognize and Reward Employee Achievements
Want to improve employee retention? Recognize and appreciate their efforts in bringing fresh ideas and innovations to your company. Implementing structured recognition programs can be highly effective.
For instance, SIB Development & Consulting offers a $50,000 bonus to employees who stay with the company for five years, which boosts loyalty and reduces turnover.
5. Encourage Work-Life Balance
A healthy work-life balance helps in retaining the best employees in companies. Offering flexible work arrangements, such as remote work options and flexible hours, allows employees to manage their personal and professional responsibilities more effectively.
Final Verdict - Improver Employee Retention Today!
A high retention rate means employees are happy at work, which helps the company save costs on hiring and keeps valuable experience within the team. To keep employees engaged and loyal, you should focus on creating a positive work culture, offering fair pay, and providing opportunities for growth.
Regular checks on retention numbers help businesses identify problems early on and make necessary changes to retain their top performers, ultimately leading to long-term success.
Frequently Asked Questions
1. What factors affect employee retention?
Several factors impact retention, including compensation, career growth opportunities, work-life balance, company culture, and leadership quality. Employees are more likely to stay in organizations that provide clear career paths, recognition, and a supportive work environment.
2. How to Calculate Retention Time?
To calculate employee retention time, sum the total tenure of all retained employees and divide it by the number of employees. The formula is:
Retention Time = Sum of Tenure of Retained Employees ÷ Number of Retained Employees For example, if three employees have worked for 5, 7, and 10 years, the average retention time would be (5+7+10) ÷ 3 = 7.3 years.
3. What is retention rate vs turnover rate?
Retention rate measures the percentage of employees who stay with a company over a specific period, indicating workplace stability and employee satisfaction. Turnover rate, on the other hand, tracks the percentage of employees who leave (voluntarily or involuntarily) within a given timeframe.
