How to calculate (and improve) your employee retention rate

As the old saying goes, you can’t improve what you can’t measure. And when it comes to the metrics that matter, most leaders are quick to point to employee retention.

According to a recent survey of CEOs, retaining and engaging employees was the top priority for 2024. However, you need to know where you’re starting from to improve your employee retention.

We wrote this guide to help you take effective action against turnover. In this guide, we’ll cover:

• How to calculate your employee retention rate
• Why it’s important to track the metric
• Strategies you can use to make your company a place where employees want to stick around

Why employee retention is more than just a metric

Let’s start with a simple definition:

Your employee retention rate is the percentage of employees who stay with your company over a specific period of time.

This metric has a significant impact on your business. Losing and replacing employees is extremely expensive, with researchers estimating that replacing an employee can cost anywhere from 0.5 to two times the employee’s salary.

Beyond the tangible turnover costs, constantly losing employees also means you’re losing out on valuable experience and institutional knowledge. When you’ve invested time, money, and resources to get workers up to speed, you don’t want to see those same employees leaving in droves.

Your retention rate matters. But it’s important to remember that it’s so much more than a metric on a report – it’s an honest and reliable indicator of workers’ job satisfaction, their engagement, and your overall company culture.

A low retention rate can indicate anything from poor leadership to a severe lack of professional development opportunities. So, remember to put your retention rate in context. It’s one of the strongest indicators that you need to make strategic improvements within your business – and fast.

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The simple formula for calculating employee retention rate

Once you’re ready to calculate your employee retention rate, start by selecting the specific time period you want to look at. In general, we recommend calculating your retention rate annually, and your employee turnover rate more frequently.

Once you know the time period you’re looking at, answer the following:

• How many employees did you have at the beginning of the defined time period? (Remaining employees)
• How many employees did you have at the end of the defined time period? (Original employees)

When answering these questions, don’t include any employees hired during the period in question. Since our intention is to calculate employee retention, including new hires will skew your numbers.

Once you have your numbers, plug them into this simple employee retention rate formula:

Real-world example: Calculating the retention rate for your department

Let’s say you want to look at your department’s retention rate over the past year. You look at your people data and note the following:

• Your department had 1,347 employees at the beginning of the year.
• You have 1,294 employees in your department at the end of the year.
  • This number includes 27 new hires. You subtract these employees from the equation, leaving you with 1,267 employees.

  Your retention rate can thus be calculated as:

(1,267 employees / 1,347 employees) x 100 = 94% employee retention rate

What is considered a “good” employee retention rate?

Once you’ve determined your employee retention rate, it’s natural to wonder: Is my retention rate good?

Generally speaking, a retention rate of 90% or higher is quite good, but it’s always important to consider your company’s context. For example, if you’re a technology company, comparing your retention rate to a retail brand is probably not helpful. Retention rates will vary across departments, industries, regions, etc., and can fluctuate depending on macroeconomic conditions.

What influences employee retention rate?

There are a variety of factors that shape employee retention, such as:

Company culture

Company culture is one of the make-it-or-break-it factors that significantly influence retention and turnover. In fact, a toxic company culture was the top reason people quit their jobs in 2022, ahead of low pay, poor management, and a lack of healthy work-life balance. Separate research from MIT found that a toxic culture is 10.4 times more likely to contribute to attrition than compensation.

Compensation and benefits

While salary isn’t the main aspect of the employee experience that impacts retention, it remains a significant factor, with 73% of surveyed employees admitting they’d consider leaving their current job for higher pay. If your company is struggling with retention, consider auditing your salary practices to see whether your company is offering a fair and competitive compensation package.

Career development opportunities

Culture Amp research has found that lack of career advancement and development opportunities is the #1 reason employees choose to join or leave a company across all tenure groups. Separate research found that workers prioritize learning and development opportunities between higher salaries or more L&D.

It’s clear that employee development has a strong impact on retention, yet a startling 46% of employees say they lack career support from their managers, with 25% saying they’ll likely quit their job within the next six months because of it.

Work-life balance

Employees increasingly prioritize a positive work environment that encourages an adequate balance between their professional and personal lives. This is particularly true post-pandemic, as many people have a much clearer idea of how they want work to fit into their lives. That means they’re far less likely to put up with expectations and work conditions that don’t align with their values and lifestyle. This is backed by one 2023 survey, which found that poor work-life balance was the top reason people say they choose to quit their jobs.

Management and leadership

You’ve probably heard the old sentiment that people don’t leave jobs—they leave managers. While that platitude might be overblown, managers do impact employee morale and intent to stay. Culture Amp research shows that while an employee’s manager impacts their intent to leave or stay in a company, it’s usually not the deciding factor.

Job security

Constant layoffs, restructurings, and feelings of uncertainty can be anxiety-inducing for employees. Studies show that perceived job insecurity hinders employee engagement. When workers’ engagement dips, so can their desire to stay with the company long-term.

Recognition and rewards

Regular and genuine recognition is a key part of the employee experience and can directly impact job satisfaction, morale, and workers’ perceptions of your company. According to Gallup, well-recognized employees are 45% less likely to have turned over after two years.

Relationships with coworkers

Employees who share tighter bonds with their coworkers have a stronger sense of belonging. And when employees feel like they belong, they’re less likely to leave the company.

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Retention rate vs. turnover rate: Key differences explained

As you work to improve your employee retention rate, you’ll encounter a similar term: employee turnover rate. While these metrics are related, there is a key difference: retention rate looks at the rate of employees that stay at a company, while turnover rate looks at the rate at which employees leave a company.

That seems simple enough, but there’s another key difference to consider when considering turnover and retention: timeframe.

Retention rate is a long-term metric typically calculated annually, while turnover is calculated more frequently (i.e., monthly).

Both metrics should play an important role in shaping your people strategy, as they are both key indicators of the overall employee experience. A high retention rate suggests your employees are satisfied and engaged, while a high turnover rate can signal unhappiness and larger problems within your company.

Top strategies to improve employee retention

With so many factors influencing your employee retention, there are seemingly endless levers to pull. Here are a few employee retention strategies you can implement to encourage more employees to stick around.

• Ensure you offer competitive compensation packages: Revisit and revise your compensation plan to confirm your pay is aligned with the market and reflects your employees’ value and performance.
• Offer career growth opportunities: Do you offer learning and development resources? Have you detailed clear paths for advancement? Do you provide mentorship programs? Do employees have full management support? If not, these are all changes you can make to show employees your company isn’t just the place they work – it’s the place where they can grow a meaningful career.
• Provide frequent and genuine recognition: You’d be surprised by how far a simple “good job” or a token of appreciation can go. Try out various employee recognition ideas to see which ones are most effective in helping your workers feel valued and appreciated for their contributions.
• Invest in employee well-being: Wellbeing is crucial to your overall employee experience. You can improve retention by investing in mental health resources, wellness programs, and other benefits and offerings that target work-life balance, such as flexible hours, remote work options, and additional paid time off.
• Commit to open and honest communication: Transparent communication is important to employee engagement, with more than three in four employees saying they want more transparency from their employer and three in 10 saying they’ve left a job due to a lack of transparency about growth and development. Try to communicate proactively and candidly with your employees, and train managers to do the same.
• Build strong relationships between managers and teams: Provide training and upskilling opportunities to managers to help them become stronger leaders. Help them develop key management skills, such as how to hold more impactful one-on-one conversations with their direct reports, help their teams navigate burnout, guide development conversations, etc.

All of the above strategies can make an impact. But, the most effective way to increase your employees’ commitment to your organization is surprisingly straightforward: ask them what they want.

When you give employees regular opportunities to provide feedback (and you act on the insights they share), you build a workplace that meets and exceeds their needs and expectations – rather than acting on assumptions about what will keep them around.

Making your retention rate part of your long-term HR strategy

Your employee retention rate shouldn’t be treated as just a number – it should be considered a foundational piece of your long-term HR strategy. When you look at it from that perspective, you can turn your retention rate into a metric that keeps you and your leaders hyper-aware and accountable for continuously improving the employee experience so your organization becomes a place where people want to stay.

Here’s how to make your retention rate an integral part of your strategy rather than a siloed benchmark.

1. Align retention goals with your business goals

Of course, you want to keep top talent around. But just as with any other people-focused goal, retention needs to ladder up to your larger business objectives. This helps you set retention targets and initiatives that support long-term success.

For example, if your organization is focused on innovation and expanding into new markets, prioritize retention strategies that nurture a highly skilled workforce that can advance those initiatives.

Put simply, your retention strategies shouldn’t be about keeping all your people – they should be about keeping the right people.

2. Put the right tools in place

While calculating your retention rate is simple back-of-the-napkin math, managing and improving retention requires a more sophisticated approach. You need the right tools to measure and consistently improve your employee experience and satisfaction.

Employee engagement platforms, performance management systems, and feedback tools are extremely helpful for tracking key HR metrics and responding to employee concerns in real-time.

3. Monitor continuously (and adjust accordingly)

Retention is a continuous effort, not a one-time fix. Monitor your retention rate at least annually, conduct exit interviews with departing employees, and solicit regular employee feedback to understand whether your strategy is working and what you need to adjust.

Being adaptable will ensure your retention efforts remain relevant and are as effective as possible.

Keep your top talent around

Employee turnover is costly and disruptive, so it makes sense that so many leaders focus on retaining employees.

Here’s the good news: encouraging workers to stick with your organization isn’t a mystery. Many factors influence your employees’ intent to stay, and they are all opportunities for you to take action and improve your retention rate.

Culture Amp gives you the tools and insights to bring turnover down and performance up

Learn more about how Culture Amp can help you boost your retention.

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