Employee Retention

How to calculate employee retention for your business

calculate employee retention

Employee retention. Everyone understands it, but very few have actually mastered it.

A company’s ‘employee retention rate’ is defined as its ability to retain its employees. As you might gather from the word ‘retain’ (to keep), it’s all about the rate at which a company is keeping its employees, and not losing them to better opportunities.

The fact is, people will always come and go, but if it’s becoming a more frequent occurrence, calculating your retention rate might help you find a common pattern. Perhaps you’d simply like to dig a little deeper into the reasons why your employees might not be hanging around.

The best place to start is to calculate your employee retention rate.


Why you should calculate employee retention

Working out the rate at which your employees leave your company may sound like a fluffy metric, but really it’s quite accurate and it can be useful when looking at employee turnover too.

As you may already know, employee retention and employee turnover are not the same thing.

Retention is about employees staying while turnover is about employees leaving. They are closely related. For example, if employees aren’t leaving (low turnover) then they must be staying (high retention).

But when you have a high employee turnover, it can really affect the well-being of your company. It’s expensive, and not to mention, timely. The costs can range from time spent on training, to time spent finding a replacement, as well as time lost in productivity.

McDonald’s is one such company that is known for its high employee turnover. They train staff quickly in order to get the job done as fast as possible, knowing it is unlikely that an employee will stay longer than 6 months.

Although McDonald’s is a successful franchise, think of the benefits it could enjoy if just a small fraction of their employee turnover was decreased, as well as the happiness employees could experience from working with people that actually stayed.

In other cases, replacing employees can also be extremely disruptive. If an experienced employee leaves, there’s often a huge knowledge gap that is left. This means that the rest of the team will need to pick up the work left over by the employee. What’s more is that new employees can take anywhere up to 6 months to settle in before they become highly skilled and trained in their role.

So, having a high employee turnover isn’t great.

That’s why it’s important to work out your employee retention rate, so that you can figure out ways of lowering your employee turnover.

Working out your employee retention rate can offer insights into management efficiency, effectiveness of training and levels of employee satisfaction, when analysed correctly, alongside turnover.


How to calculate employee retention

What employee retention boils down to is how satisfied employees are with their employers. Here’s how you can calculate it:

Let’s say your company had 500 employees at the beginning of the year and 50 employees have left the company during this time. The number of employees that stayed is therefore 450 (500 - 50).

So...

Employee retention rate = (total number of employees retained/ total number of positions in the company during the time period) x 100

In this case, the employee retention rate will be:

= 450/500 x 100

= 90%

This is, of course, a relatively good rate. You can calculate the retention rate on a monthly, quarterly or annual basis, depending on what you’re looking for.

 

The next step

Now that your results are in, you may want to better understand what’s causing a low employee retention rate, and lack of employee loyalty (if that is the case), so that you can take the appropriate steps to improve it. Answering these questions might help you take the next steps.

“When do they leave?”

Tracking when employees are leaving is important because if there is a common thread, there could be an opportunity to mend it. For example, are employees leaving near a time when they are considering having children? If so, perhaps a change in maternity and paternity structures would best suit this situation. Or are they leaving when the workload has become too heavy? Here, you could consider implementing a better work-life balance, better employee engagement tactics or more flexible leave structures after busy periods.

“Why they are leaving?”

Exit interviews are an important part of understanding why employees might be leaving too. You must ask why. Human resources can play the role of facilitating this process, as employees may not want to speak to someone on their team, but rather someone from neutral ground. Perhaps employees say their efforts are not being recognised, or they do not enjoy the management. When you know why your employees leave, you can change your company’s management style or policies in response.

So there you have it, calculate your employee retention rates to break down why your employees might be leaving so that you can begin the steps to decreasing employee turnover, saving you time and money. Maybe something as simple as recognising good work is missing in your company? The truth is, a person that feels appreciated will always do more than is expected.

Watch employee satisfaction grow when you build a recognition strategy. Not sure how? Here’s your 10 step guide to building your very own recognition programme. 👇

employee recognition