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- What is Employee Retention Rate?<\/a><\/li>\n\n\n\n
- Why You Should Calculate and Care about Your Retention Rate<\/a><\/li>\n\n\n\n
- How to Calculate Your Retention Rate of Employees<\/a><\/li>\n\n\n\n
- Proven Ways to Improve Your Retention Rates<\/a><\/li>\n\n\n\n
- Closing thoughts and advice on Employee Retention<\/a><\/li>\n<\/ul>\n\n\n\n
Let's start by looking at exactly what retention rate means and why you should pay close attention to it.<\/p>\n\n\n\n
What is an Employee Retention Rate?<\/h2>\n\n\n\n
First things first, let\u2019s briefly define what your employee retention rate is. <\/p>\n\n\n\n
Employee retention rate measures how well your company is retaining its employees. When you calculate the employee retention rate, you get a percentage of people who remain in your company for a specific period. Usually, it\u2019s calculated monthly, quarterly, or annually. <\/p>\n\n\n\n
Some people think that it\u2019s the same as employee turnover rate, but in reality, it is the opposite. The turnover rate measures how many employees leave your company in a given period, while retention rate is about how many stay. They\u2019re different metrics, but are caused by the same reasons. <\/p>\n\n\n\n
Keep in mind that both of them are not just some numbers on your dashboard. They help you understand how well you are succeeding in creating a great workplace culture<\/a> and managing people. They are a real measure of how your employees feel about working at your company. <\/p>\n\n\n\n
What do your numbers say about your company?<\/em><\/p>\n\n\n\n
Why you Should Calculate and Take Care of Your Retention Rate<\/h3>\n\n\n\n
Your employee retention rate is a barometer for how your company is doing. You should treat it as a sign of a job well done, or a serious sign of trouble brewing that you need to address. <\/p>\n\n\n\n
When your retention rate is high, it means your employees like working at your company. They feel fulfilled and don\u2019t want to go to the trouble of searching for a job somewhere else. <\/p>\n\n\n\n
Meanwhile, if your rate starts to drop, that is a sign your employees are voting with their feet; they\u2019ve decided they\u2019d rather work somewhere else. Unless you make changes you\u2019ll have more and more people looking for the exit.<\/p>\n\n\n\n
The costs of employees you fail to retain can add up fast.<\/p>\n\n\n\n
Losing employees is extremely expensive! The Society for Human Resource Management<\/a> found that it costs an average of 6-9 months of your former employee's salary to find and onboard their replacement. And that cost is just for a single lost team member <\/p>\n\n\n\n
Can you imagine how quickly those replacement costs add up if you're losing a wave of team members?<\/p>\n\n\n\n
All that said, money is just one of the downsides of low retention rates. <\/p>\n\n\n\n
High turnover also kills the productivity of your company because you constantly have to train new hires. Plus, your team's morale and performance suffer when you lose valued members. People have friends they\u2019ll miss, and everyone tires of training new hires if it keeps happening (\u201cwhat\u2019s the point of onboarding someone who is just going to quit!??\u201d<\/em>).<\/p>\n\n\n\n
Here are some additional costs associated with low retention rates you may not have considered:<\/p>\n\n\n\n
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- Lost productivity as positions stay vacant.<\/strong> When an employee leaves, there is still work that needs to be done. Their projects and responsibilities don't disappear. Hubspot estimates this productivity drain costs businesses $1.8 trillion per year across the US<\/a>. For key roles like executives, the impact is even greater.<\/li>\n\n\n\n
- Costly advertising and recruiter fees to source new candidates<\/strong>. According to our calculations<\/a> in a prior post, it could cost you over $25,000 simply to source candidates that eventually lead to a single hire.<\/li>\n\n\n\n
- Screening resumes and conducting interviews takes a lot of your time<\/strong>. Filtering through resumes, holding phone screens, and hosting in-person interviews can cost a great deal in lost productivity for you and every team member involved.<\/li>\n\n\n\n
- New employees take months to reach full productivity<\/strong>. Someone who has been doing a job for years is going to be a lot better and faster at doing that job than someone brand new. It takes months to ramp up, which you also need to add as a hidden cost.<\/li>\n<\/ul>\n\n\n\n
When you add all that up, you can see that turnover really hurts your bottom line. If you\u2019re not careful, it can drag down your whole business without you even recognizing the problem. That\u2019s why monitoring your retention metrics has to be a priority.<\/p>\n\n\n\n
Otherwise, it can get quite bad before you do anything about it, and then it will be a lot harder to fix. <\/p>\n\n\n\n
With that in mind, let\u2019s look at how you can calculate this number. <\/p>\n\n\n\n
![\"calculation](\"https:\/\/getlighthouse.com\/blog\/wp-content\/uploads\/2023\/11\/calculation-of-employee-retention-rates-1024x683.jpg\" "\\"\\"")
<\/figure>\n\n\n\nHow to Calculate Your Retention Rate of Employees<\/h2>\n\n\n\n
Calculating your retention rate is quite easy \u2014 you just need two key figures:<\/p>\n\n\n\n
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- Number of employees at the start of the period<\/li>\n\n\n\n
- Number of employees who remain at the end of the period<\/li>\n<\/ol>\n\n\n\n
Here\u2019s what a retention rate formula looks like:<\/p>\n\n\n\n
Retention Rate = (Number of employees retained \/ Number of employees at start of period) x 100<\/strong><\/p>\n\n\n\n
Let's walk through a few examples to see how it works.<\/p>\n\n\n\n
Examples of Calculating Retention Rate<\/h3>\n\n\n\n
Monthly Retention Rate<\/strong><\/th> Quarterly Retention Rate<\/strong><\/th> Annual Retention Rate<\/strong><\/th><\/tr><\/thead> \u2014 Start of month: 30 employees
\u2014 End of month: 24 employees
\u2014 Retention Rate = (24 \/ 30) x 100 = 80%<\/td>\u2014 Start of quarter: 150 employees
\u2014 End of quarter: 130 employees
\u2014 Retention Rate = (130 \/ 150) x 100 = 86.7%<\/td>\u2014 Start of year: 500 employees
\u2014 End of year: 450 employees
\u2014 Retention Rate = (450 \/ 500) x 100 = 90%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nAs you can see, even losing a few employees each month can significantly impact your overall retention rate.<\/p>\n\n\n\n
It's important to note that when calculating your retention rate, you should not<\/em> count any new hires that joined your company during the time period. For example, if you had 30 employees at the start of the month, hired 10 new people, but lost 6 employees, your retention rate should be based on the 30 initial employees, not the net growth to 34 people. The 6 employees who left represent hidden turnover that could be masked if new hires are included in the calculation.
Many companies, especially those experiencing hyper growth, make the mistake of counting new hires, failing to realize how many people they are actually losing. <\/p>\n\n\n\nDon\u2019t make that mistake. <\/p>\n\n\n\n
It can be very costly to then only recognize a retention issue once you can\u2019t hire fast enough to keep up with so many people leaving. That\u2019s where I\u2019ve personally seen companies turn out to have retention rates as low as the 60-70% range once they calculate it properly. <\/p>\n\n\n\n
Retention Rate Calculator<\/h3>\n\n\n\n
You can use our free retention rate calculator to make things super easy for you to measure it right now. Remember to exclude any new hires that would hide your real turnover rate:<\/p>\n\n\n\n
<\/div>\n
- Costly advertising and recruiter fees to source new candidates<\/strong>. According to our calculations<\/a> in a prior post, it could cost you over $25,000 simply to source candidates that eventually lead to a single hire.<\/li>\n\n\n\n
- Why You Should Calculate and Care about Your Retention Rate<\/a><\/li>\n\n\n\n