Retention Rate Formula

You can monitor your employee retention rate to grow your business or balance it. This metric is a key indicator of how many employees choose to remain with your organisation and offers valuable insights into the effectiveness of your engagement and retention strategies. Not tracking this vital measure accurately puts your top performers at risk of leaving, resulting in decreased productivity, loss of institutional knowledge, low employee morale, and increased recruitment and onboarding costs.

This blog will discuss the following points of the retention rate formula.

Index:

• What is the Retention Rate?
• What is the Employee Retention Rate?
• Why is the Retention Rate important?
• Employee retention rate formula
• How to calculate the retention rate?
• How to Improve Employee Retention Rate?

What is the Retention Rate?

Retention rate refers to the percentage of something that is retained over a period of time. It can be applied to different contexts, such as employees, customers, students, subscribers, etc. For example, the employee retention rate is the percentage of employees staying in your organisation over a given period.

What is the Employee Retention Rate?

Employee retention rate is a metric that measures the number of employees who continue to work for your company during a specific timeframe. This calculation involves comparing the number of employees at the start of the period to the number of those same employees who are still working for you at the end. Usually, the retention rate is calculated either annually or quarterly. By assessing the number of employees who remain with your company, you can obtain significant knowledge about employee satisfaction and pinpoint places to enhance your company’s policies.

Why is the Retention Rate important?

Retention rate is important because it can help you to measure the value and satisfaction of your employees that you want to retain.

But there are various reasons to know why the retention rate is important –

1. Cost reduction of the organisation – High employee turnover can be costly, so high retention rates are essential for reducing expenses.
2. Improved employee engagement – You can focus on essential factors for employee engagement, such as strengthening your organisational culture, enhancing employee morale, fostering talent development, and building successful teams.
3. Improved employee productivity – Longer employee tenure leads to increased productivity, while high turnover rates disrupt continuity and decrease productivity.
4. Addressed issues – Check your retention rate to identify areas of focus and potential risks in specific roles or departments. Take proactive steps to address any issues.
5. Reduce hiring costs and time – Streamline recruitment to invest in employee experience and prevent turnover.
6. Improved organisation culture – Creating a supportive workplace culture is key to retaining employees. It enhances engagement, inclusivity, and overall employee experience, reducing turnover.
7. Improve your organisation’s brand.

Employee retention rate formula

Following is the employee retention rate formula –

Employee retention rate = ((Total no. of employees at the start of the time period) – (the no. of left employees during the time period)) ÷ (total no.of employees) x 100

For example – In an organisation that has 500 employees at the start of the year and 20 employees left during the year, then the employee retention rate will be:

Employee retention rate = ((500 – 20) / 500) x 100

                                               = 96%

How to calculate the retention rate?

Before calculating the employee retention rate, you need to select a timeframe for measurement, such as quarterly or yearly. You need to know the total number of employees at the start and end of a certain period to calculate your turnover rate by dividing the number of employees at the end of the timeframe by the beginning number and multiplying by 100.

It allows you to calculate voluntary and involuntary turnover separately to determine the percentage of employees who left independently versus those who were laid off.

Let’s see the calculation of the employee retention rate –

Suppose your organisation had 600 employees on 1st April 2022 and 350 employees on 1st March 2023. Calculate yearly retention rate.

Yearly employee retention rate = ((600 – 350) / 600)) x 100

                                                            = 42%

You have 300 employees on 1st July 2022 and 200 employees on 1st September 2023. Calculate quarterly retention rate.

Quarterly employee retention rate = ((300 – 200) / 300)) x 100

                                                                   = 33.33%

How to Improve Employee Retention Rate?

To improve the retention rate, you need to keep the following points in your mind –

1. While hiring, keep retention in mind – To reduce turnover rates in high-turnover industries, like retail or hospitality, offer candidates a realistic preview of the job and company during recruitment. Hire employees who align with your company values and understand their expectations. This can increase job satisfaction and reduce turnover in the first year.
2. Create a culture that values giving recognition and feedback – Collecting employee feedback is essential for satisfaction and retention. However, action must be taken based on the feedback received at both organisational and individual levels. Focus on high-potential and critical-skill employees, and track new employees to prevent early turnover.
3. Develop employee engagement – It is important to have engaged employees who will stay with the company for a longer period. To achieve this, a solid employee engagement plan should be established. Employee satisfaction and engagement can be improved by offering learning and growth opportunities, transparent promotion procedures, health insurance, parental leave policy, diverse rewards, recognition, perks, and meaningful work. Additionally, promoting a healthy work-life balance can prevent employee burnout.
4. Improve company culture – Company culture impacts employee retention. Foster inclusivity and belonging. Regularly review engagement survey results and consider external factors. Be consistent and focus on long-term plans for culture and the work environment.

This brings us to the end of our discussion on the retention rate formula. Let us know if you have any other questions or opinions on this topic. Mention the comment box below.

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