How to Calculate Employee Retention Rate

First and foremost, you need to determine the time period in which you would like to measure retention. Some companies will do this once a year to once every other year, while others see better results when calculating their retention quarterly or twice a year.

“Annual review [of retention numbers] Employee retention is an essential factor to your business’s success. Your staff lays the foundation of your company’s structure, and you want to keep your employees committed to their roles in the organization. Conserving their engagement and keeping them happy is vital to retain your staff. Thus, you want to make sure to understand and accurately calculate your workforce retention rate.

Two of Flex HR’s Consultants provide their insights to Lattice Magazine for HR Professionals outlining why measuring employee retention rate is value to build a healthy, sustainable company.

“Investing in retention shows that the organization cares…which leads to more innovation, a more engaged workforce, better market share, and higher profits,”

says Kathy Zadroga, HR consultant at full-service Human Resources outsourcing and consulting firm Flex HR.

“Greater employee retention not only avoids costs [associated with employee turnover], but can also yield greater performance and productivity,”

notes Phil Davis, Senior Vice President of Flex HR. “Employee retention is critical to team cohesion — and team cohesion is critical to exceptional team performance.”

Davis goes on to explain “successful organizations are built on talented and committed employees. Competitive retention rates enable management to focus on growth and profitability without the distractions of recruiting and terminating high numbers of employees.”

How To Calculate Employee Retention Rate

“Annual review [of retention numbers] might miss out on nuances of trends and possible other factors — [like] seasonal [fluctuations], contract renewals, benefit renewals, [or] performance reviews,” cautions Zadroga.

In order to stay on top of retention trends, you’ll want to calculate employee retention rate on a more regular basis. “At Flex HR, we recommend a monthly calculation to reveal trends, provide an early warning system of potential negative trends, and provide regular feedback on activities and investments being made to increase retention,” said Davis.

Alright, so you have the timeframe you want to measure, next you need the number of employees employed on the first day of the time period as well as the number of employees that remained employed through that time period. Do not include any new hires added to your staff during this timeframe.

To determine the retention rate, divide the number of employees that stayed with your company through the entire time period by the number of employees you started with on day one. Lastly, multiply that number by 100 to get your employee retention rate.

(Remaining Headcount During Set Period ÷ Starting Headcount During Set Period) x 100

5 Tips to Improve Employee Retention Rate:

Hire the right people
Employee retention starts with who you hire. To improve your employee retention rate, “make sure you are hiring…the right people for the jobs and the organization. Compatibility of teammates matters.” Davis said.
Invest in leaders
To see your employee retention rate increase, “invest in the selection and training of your supervisors and monitor their impact on their [teams],” Davis advised.
Build a values-based culture
According to recent research from research and advisory firm Gartner, 68% of employees would consider leaving their organization for an employer that takes a stronger stance on cultural and societal issues.

“Make sure your mission is known and understood by all employees,”

says Davis. “People like to feel part of a worthwhile endeavor.”

Compensate your employees well
According to LinkedIn’s 2020 Global Talent Trends Report, companies that were rated highly on compensation and benefits saw 56% lower attrition, or the rate of employees leaving the company.When determining your compensation strategy, “try to be at or slightly above market,” advised Davis. “Sometimes [having] a position higher or lower than [the market] average may be justified but be sure that you know where you stand relative to the market — and why you have chosen to compete at that level.”
Understand that your money isn’t the answer to all your retention problems
If you are struggling to retain your employees, throwing money at the issue is not necessarily the solution. According to research from O.C, Tanner Learning Group, 79% of employees who quit their jobs cited “lack of appreciation” as their reason for leaving. And LinkedIn’s 2018 Workplace Learning Report found that 94% of employees would stay at a company longer if it invested in their careers.

Preserving your talented employees is a vital ingredient to improving and growing your company for success. Be sure to take the time to calculate your employee retention rate to ensure it’s at a level of satisfaction. And if it’s not, identify what the issues might be and make some changes to improve retention rates and keep your staff content.

Read the full article in Lattice Magazine for HR Professionals