Employee Engagement

How to Calculate Employee Retention Rate

June 30, 2021
June 23, 2022
Deanna deBara
Lattice Team

Your staff is the foundation of your company’s success, and in order for your foundation to stay strong, you need to keep your employees committed to their roles and your organization. In other words, you need to keep employee retention high. To do that, you have to be able to calculate — and understand — your employee retention rate.

Staying on top of your employee retention rate requires gathering data, crunching numbers, and taking a hard look at what you are (or aren’t) doing to keep your employees engaged and happy in their roles. Because it requires some extra effort, you may be tempted to push it toward the bottom of your priority list. But the truth is, once you understand the ins and outs of calculating employee retention rate, it’s actually pretty simple — and the benefits to your organization more than make up for the effort.

Read on for everything you need to know about how to measure employee retention — including an employee retention rate calculator to help you determine your own organization’s retention rate.

What Employee Retention Rate Is and Why It’s Important

Employee retention is the inverse of employee turnover. So, if employee turnover rate is defined as the percentage of employees that leave your organization during a given time frame, then employee retention would be the percentage of employees that stay with your organization during that time frame. And keeping your top employees at your organization and committed to their roles is a must if you want to build a healthy, sustainable company.

“Investing in retention shows that the organization cares...which leads to more innovation, a more engaged workforce, better market share, and higher profits,” said Kathy Zadroga, HR consultant at full-service Human Resources outsourcing and consulting firm Flex HR.

“Greater employee retention not only avoids costs [associated with employee turnover], but can also yield greater performance and productivity,” noted Phil Davis, Senior Vice President of Flex HR. “Employee retention is critical to team cohesion — and team cohesion is critical to exceptional team performance.”

Getting a deeper understanding of employee retention rates can also help businesses better navigate a variety of situations and make more effective business decisions. “[Understanding retention] rates is useful for workforce planning, project planning, recruiting needs, [and] potential labor shortages within the workforce,” explained Cabot Jaffee, PhD, CEO and President of hiring software company AlignMark.

When you can get — and keep — your retention rate high, it allows you to focus on the critical parts of your business, instead of constantly having to find, hire, and train new employees.

“Successful organizations are built on talented and committed employees,” Davis said. “Competitive retention rates enable management to focus on growth and profitability without the distractions of recruiting and terminating high numbers of employees.”

Knowing how to measure employee retention is essential for building a thriving organization. Here’s how to do it.

How to Calculate Employee Retention Rate

When you’re calculating employee retention rate, the first step is to determine what time period you want to use to measure retention. While some companies measure their retention rate on an annual basis, only running your retention numbers once per year is a significant missed opportunity.

“Annual review [of retention numbers] might miss out on nuances of trends and possible other factors — [like] seasonal [fluctuations], contract renewals, benefit renewals, [or] performance reviews,” cautioned Zadroga.

In order to stay on top of retention trends, you’ll want to calculate employee retention rate on a more regular basis. “We recommend a monthly calculation to reveal trends, provide an early warning system of potential negative trends, and provide regular feedback on activities and investments being made to increase retention,” said Davis.

Once you’ve decided on the time period you want to focus on, there are two additional data points you’ll need: the number of employees employed on the first day of the given time period, and the number of employees who stayed employed through the length of said time period. (Note that you wouldn’t include any new hires who started during that time period as part of this second figure, so you’ll want to separate them out for this calculation.)

To calculate the retention rate, divide the number of employees that stayed with your company through the entire time period by the number of employees you started with on day one. Then, multiply that number by 100 to get your employee retention rate.

In formula form, the employee retention rate calculation for a given time period would look like this:

Retention Rate Formula

(Remaining Headcount During Set Period ÷ Starting Headcount During Set Period) x 100

For example, let’s say you wanted to measure your employee retention rate for the past month. On the first day of the month, you had 30 employees, and on the last day of the month you had 28 employees, as two team members left your organization to pursue other opportunities. In that scenario, your employee retention rate would be (28/30) x 100, or 93.33%.

Want to give it a try yourself? Use the below calculator to determine your company's employee retention rate.

5 Tips to Improve Employee Retention Rate

Calculating employee retention rate will help you gain a better understanding of how many employees are remaining with your company. But if you want to actually improve your employee retention, you’ll need to go past this calculation.

Here are five tips to help you boost employee retention rate — and improve the health of your company in the process.

1. Hire the right people.

Employee retention starts with who you hire. To improve your employee retention rate, “make sure you are hiring...the right people for the jobs and the organization,” Davis said.

Before you start interviewing for a position, make sure you’re clear on the role, its responsibilities, and what type of person you’re looking for. When you start interviewing candidates, be sure to take enough time to get to know them and get a sense of whether they’re the right fit for the role, your organization, and the team they’ll be working with. According to Davis, beyond a candidate being qualified for the role they’ll be performing, there’s a bigger picture that needs to be taken into consideration: “The compatibility of teammates matters,” he said.

Being deliberate during the hiring process will ensure that you get the right people into your organization. And when it’s the right fit for you and them, it will increase the chances that they’ll stay with your organization for years to come.

2. Invest in leaders.

When it comes to improving your employee retention rate, a lot of the responsibility falls on management.

“The individual within the organization who has the biggest impact on retention rates is the person’s immediate manager,” noted Jaffee.

If an employee has a manager who trusts and respects them and helps foster their professional growth, they’re far more likely to stay with an organization than if they have a manager who micromanages them, treats them poorly, or prevents them from reaching their full potential.

To see your employee retention rate increase, “invest in the selection and training of your supervisors and monitor their impact on their [teams],” Davis advised.

3. Build a values-based culture.

Employees want to feel like their work matters and that they’re part of something bigger than themselves. If your employees don’t feel like your organization has a mission they can get behind, it could lead them to look elsewhere — and cause your retention rate to plummet. According to recent research from research and advisory firm Gartner, 68% of employees would consider leaving their organization for an employer that takes a stronger stance on cultural and societal issues.

Therefore, if you want to improve employee retention, focus on building a values-based culture and getting your employees on board with your corporate values and mission.

“Make sure your mission is known and understood by all employees,” Davis said. “People like to feel part of a worthwhile endeavor.”

For example, if your company is focused on sustainability, you could send quarterly updates to staff on how your organization is lowering its carbon footprint, and schedule regular environmentally focused volunteer opportunities for your team. If your mission is to improve your community, keep your team informed on how you’re making that happen and give them plenty of opportunities to get involved.

When you rally your team around your corporate mission and values, it can give them a deeper sense of purpose at work — and make it more likely that they’ll stay with your organization long-term.

4. Compensate your employees well...

It doesn’t matter how well you do everything else — if you’re not compensating your employees fairly and competitively, you’re going to struggle with retention. Conversely, if you pay your employees well, they’ll be more likely to remain with your organization. According to LinkedIn’s 2020 Global Talent Trends Report, companies that were rated highly on compensation and benefits saw 56% lower attrition, or the rate of employees leaving the company. 

When determining your compensation strategy, “try to be at or slightly above market,” advised Davis. “Sometimes [having] a position higher or lower than [the market] average may be justified, but be sure that you know where you stand relative to the market — and why you have chosen to compete at that level.”

5. ...but understand that money isn’t the answer to all your retention problems.

Paying your employees well is important. But if you’re struggling to retain talent, throwing money at the issue isn’t always the solution.

“While many companies feel they need to increase salary to retain people, in fact, that is not why most people leave a job,” Jaffee noted.

According to research from O.C, Tanner Learning Group, 79% of employees who quit their jobs cited “lack of appreciation” as their reason for leaving. And LinkedIn’s 2018 Workplace Learning Report found that 94% of employees would stay at a company longer if it invested in their careers.

If your employee retention rate is lower than you’d like it to be, talk to your employees and ask for their feedback on what’s working for them, what’s not, and what they need from your company in order to feel more satisfied with their roles. For example, you might interview employees and find out that their managers aren’t giving them enough praise or recognition. In this case, training your management team on how to deliver encouraging feedback would help improve your retention. Or perhaps, after talking to employees, you discover that your team is struggling with burnout. In this case, implementing policies to help your team create a better work-life balance — like rolling out an employee wellness program or shifting to a four-day workweek, for instance — could boost retention.

While there’s no denying that compensation is directly tied to retention and turnover, there are a variety of other factors that could be playing into your retention rate, too. To improve your company’s retention, you’ll need to identify and address all of them, beyond just compensation.

Retaining talent is critical for the success of your company. The more employees you keep with your company over the long term, the more you’ll be able to achieve, innovate, and accomplish — both at the team and organizational levels. Now that you know how to calculate employee retention rate (and raise it if it’s lower than you’d like), you have everything you need to boost your employee retention — and improve your organization in the process.