How to Calculate Your Employee Retention Rate (And Why It Matters)

According to Nectar—a recognition and rewards platform and BambooHR Marketplace partner—46% of employees plan to look for a new job in the next three months.

Your people are the key to your organization’s success. While some turnover is inevitable for any company, a thoughtful retention strategy can help keep top performers under your roof.

On the other hand, failing to prioritize employee retention makes your entire organization vulnerable to costly people operations and lost productivity, ultimately damaging your employer brand.

In this article, we’ll dive into the benefits of employee retention, how to calculate your own retention rate, and practical strategies that’ll entice employees to stick around. Your employees’ happiness shouldn’t be left to chance. With BambooHR’s employee satisfaction software, you can ensure your people feel heard and solve issues before it’s too late.

What Is Employee Retention—and Why Does It Matter?

Employee retention is your organization’s ability to prevent as much turnover as possible within a specific period. A comprehensive retention strategy aims to keep employees engaged, satisfied, and committed to their jobs and the company.

Simply put, the goal of retention is to convince employees to stick around for the long haul. However, a high retention rate has several positive ripple effects on your entire organization, such as:

• Lower hiring costs: Your bottom line will benefit from maintaining your workforce as opposed to frequently finding replacement workers. In fact, you can expect to spend $7,500 to $28,000 in hard costs to hire and onboard a new employee.
• Increased productivity: Soft costs, such as lost productivity, must also be considered when hiring. According to the Society for Human Resource Management (SHRM) soft costs can be as high as 60% of the total cost to hire one employee. When employees aren’t bogged down with training a revolving door of new hires, they can spend time on meaningful projects and contribute to the company’s success.
• Less burnout: Low turnover means employees can focus on the specialties they were hired for instead of shouldering workloads intended for multiple people as HR scrambles to fill open roles.
• Higher employee satisfaction: A high retention rate may also reflect employee satisfaction. Happier employees are more likely to be engaged, loyal, and proud to be in service of your company’s mission.

Retention Rate Formula

You can calculate your employee retention rate using this simple formula:

(Number of employees remaining at the end of a set period / Number of total employees at the start of a set period) x 100

For consistency and accuracy, include only those employed on both the first and last day of the period.

How to Calculate Your Employee Retention Rate

Before you can calculate your employee retention rate, you’ll need to set clear parameters. Let’s take a closer look at the steps involved in effectively using the retention rate formula:

1. Define the time period: Employee retention is commonly calculated yearly but can also be measured quarterly or monthly.
2. Determine which group of employees to measure: To calculate your company’s overall employee retention rate, you’ll need to include every employee across all job levels. On a more granular level, you could also measure the retention rate per manager, the C-suite level’s retention rate, retention rate per region or country, etc.
3. Get the headcounts: Let’s say you want to measure your overall retention rate for 2023. Count the number of people employed at the start of the period (January 1, 2023), then count those remaining at the end (December 31, 2023). Remember to count only those employed for the entire period and leave out new hires who joined in between.
4. Calculate your employee retention rate: Now you’re ready to plug your numbers into the above formula and calculate your retention rate percentage.
5. Analyze the results and take action: Generally speaking, a high retention rate may indicate high employee engagement and satisfaction, while a lower percentage translates to high turnover. As you measure different groups of employees and periods, you may notice trends (e.g., how long employees, managers, and executives typically stay with the company). These patterns will help inform your retention strategy (more on that later).

What Is a "Good" Employee Retention Rate?

A good employee retention rate can vary depending on industry, organizational goals, job market conditions, and other factors. However, several sources advise companies to generally strive for a retention rate of 90%.

While that may seem counterintuitive, perfect retention is typically not the goal since that would also entail retaining employees who may not be engaged or meeting performance expectations.

How to Increase Your Employee Retention Rate

Several factors influence employee retention, so it’s key to zero in on the aspects of employee experience that you can actually influence. Here are some strategies to consider:

Optimize the Hiring Process

If an employee isn’t a good fit for their position or your workplace culture, they’re more likely to leave regardless of the retention strategies you leverage. That’s why it’s key to attract and select the right candidates.

Craft compelling job descriptions that accurately outline key responsibilities and required qualifications, as having a laundry list of expectations will likely discourage people from applying. Job descriptions are also your chance to highlight what makes your organization unique. Clearly explaining your mission, vision, values, and company culture should help the ideal candidates get excited about the chance to join your team.

Offer a Competitive Compensation Package

It’s challenging for employees to stay motivated if they feel they’re not fairly compensated for their efforts. Aside from offering salaries that align with industry standards, companies must also provide fringe benefits that are considered table stakes. In fact, SHRM reports 88% of employees evaluate health, dental, and vision insurance plans before accepting a new role.

But if you want your best employees to stick around, you’ll need to offer additional benefits and perks that’ll help improve their work-life balance. Child-care stipends, therapy services, and free or heavily discounted gym memberships are just some of the many options to consider.

Create a Positive Work Environment

On average, we spend one-third of our lives at work, so why not make it an enjoyable place to be? Recognizing and rewarding a job well done, creating employee resource groups, and offering paid time off to volunteer for causes that matter most to your people can help build a sense of community. When employees feel connected, they’re more likely to be motivated to achieve shared company goals.

Prioritize Career Development

SHRM reports 49% of employees want more opportunities to develop their skills. Show employees you’re invested in their career paths by offering programs such as job rotation, lunch and learns, and education reimbursement. In turn, they’re more likely to see a future with your organization.

Encourage Transparent Communication

The old adage rings true: communication is a two-way street. Employees want transparency from leadership (about the good and the bad) and avenues to voice their ideas, concerns, and feedback without fear of retaliation. Options include hosting all-hands meetings, team syncs, and one-on-ones to accommodate both outspoken and more reserved employees. Being open with your workforce builds trust, and encouraging them to speak up affirms they’re valued and respected.

Unlock Actionable Feedback with BambooHR

Even if your company has an open-door policy and genuinely welcomes feedback, some people may still feel apprehensive about voicing any constructive criticism. But with Employee Satisfaction with eNPS^Ⓡ, your workforce can anonymously share their true thoughts. Plus, our software leverages AI to analyze and organize employee feedback in seconds, saving you hours of work. With a proactive and data-driven approach, you can resolve issues early and retain your organization’s most valuable asset: your people.