Analyzing a company’s employee retention rate is essential so leadership can determine if there are departments or areas that need improvement. If so, they can work on developing strategies. Assessing the employee retention rate can also give insight into the overall health of a company. Consequently, you can create employee retention strategies to combat high employee turnover rates.
What Is Employee Retention Rate?
An employee retention rate measures how many employees are retained at the company during a specific period. You can do this by comparing how many employees are at the company on a starting date with how many of the same employees are still there on the ending date. The starting and ending date is for a measurable period that the company chooses, such as one quarter or a year.
Importance of Understanding Retention Rate
Employee retention is an essential part of operating a successful business. If you have a high turnover rate, you’re spending a lot of money on replacing employees. You have money invested in the employees’ training, which is lost if they leave. You also must spend additional funds to recruit, interview, and hire new employees when they leave. A company with a high retention rate will be healthier and better positioned for the future. Implementing strategies for retention is a key element of success.
Knowing the retention rate will alert companies to any issues they may need to address. It also provides them with better insight as to how their current employee retention efforts are doing. If the rate is low, they know modifications are necessary. If it’s high, they can keep on the same path they’re on.
Most companies perform employee retention rate calculations regularly, such as quarterly or annually, so they can keep on top of this issue.
What Is the Retention Rate Formula?
Let’s look at how to calculate retention rate. You can use the following formula to get a retention rate:
Determine the total number of employees who were at the company at the start of the period (we’ll call this amount “A”).
Next, count the employees again at the end of the period and see how many of the original employees there are (this amount is “B”). To find out how many employees are left, you can subtract “B” from “A” (this is “C”).
A – B = C
Now, you will perform the second part of the calculation. Take the number of employees that left (“B”) at the end of the period and divide it by the total number of employees (“A”). For example, B ÷ A. The answer will be a decimal, which needs to be converted to a percentage, so you’ll have the rate. Multiply the decimal by 100 and simply add the percentage sign. Now you have the retention rate. The full formula looks like this:
Step 1: A – B = C
Step 2: B ÷ A = decimal x 100 = retention rate
Examples of Retention Rate Formulas
It’s easier to understand the retention rate calculation by looking at some examples. These examples take the formula and put it into practice.
A marketing firm has 50 employees at the beginning of the first quarter. On the last day of quarter 1, 42 of the original employees still work there. Let’s plug in our data to determine the retention rate.
Starting number of employees is: 50
Number of employees who left during the period: 8
Remaining number of employees is: 42
Calculation: 50 – 8 = 42 employees remained during the quarter.
The next step is dividing the remaining employees by the total number of employees at the beginning: 42 ÷ 50 = 0.84
Now, multiply 0.84 by 100 to convert it to a percentage. The retention rate is 84%.
A local auto dealership has 245 employees at the beginning of the fiscal year. Of the 245 original employees, 185 were still employed at the company on the last day of the year.
Starting number of employees is: 245
Number of employees who left during the period: 60
Remaining number of employees is: 185
Calculation: 245 – 60 = 185 employees remained over the course of the year.
The next step is dividing the remaining employees by the total number of employees at the beginning: 185 ÷ 250 = 0.74
Now, multiply 0.74 by 100 to convert it to a percentage. The retention rate is 74%.
A production company has 1,565 employees at the beginning of the calendar year, and 1,425 of them remain at the end of the calendar year.
Starting number of employees is: 1,565
Number of employees who left during the period: 140
Remaining number of employees is: 1,425
Calculation: 1,565 – 140 = 1,425 employees remained during the quarter.
The next step is dividing the remaining employees by the total number of employees at the beginning: 1,425 ÷ 1,565 = 0.91
Now, multiply 0.91 by 100 to convert it to a percentage. The retention rate is 91 %.
Tips to Increase Your Retention Rate
If your retention rate is lower than you expected or wanted, you can implement these tips to help improve it:
- Hire right. Start with employees who match the business culture and are a great fit for the job.
- Have an open-door policy for employees who are having problems or difficulties in the workplace.
- Be sure to reward your employees according to their performance. You can use merit increases, job promotions, and other incentives to keep them engaged.
- Offer training and educational opportunities, so employees continue to grow and thrive.
- Provide a salary and benefits package that makes employees feel the compensation is fair.