How to calculate your employee retention rate
Find out what an employee retention rate is, why it matters for your business, and how to calculate it.
Fierce competition for talent is currently hindering the recruitment efforts of almost 6 in 10 employers, with the average role taking nearly 5 weeks to fill. As a result, the quest to engage, retain, and develop current employees is more crucial than ever.
It’s no surprise then that nearly half (45%) of businesses see staff retention and engagement as a top priority. However, across the UK, staff turnover remains high, with a third of employees leaving their roles each year. This churn is not only costly and time-consuming but can also impact productivity.
But where do you start?
Before you can tackle employee turnover, you need to understand your current situation. This starts with calculating your employee retention rate.
Read on to learn how to calculate your employee retention rate and the steps you can take to improve it.
What is employee retention rate?
Your employee retention rate measures the percentage of employees who remain with your organisation over a specific period of time, helping you quantify the number of employees who have left the business.
Calculating your employee retention rate is essential for assessing the success of your recruitment efforts, People Strategy, and HR practices. A high employee retention rate shows you are effectively meeting your team’s needs, while a low retention rate suggests potential recruitment, engagement and retention issues.
By tracking your employee retention rate over time, you can pinpoint periods of high turnover, evaluate the impact of changes to business strategy or employee retention strategies, and make informed decisions to boost employee satisfaction.
Why is knowing your retention rate important?
Understanding your employee retention rate offers a range of benefits to your organisation.
Firstly, it can save you money. High turnover comes at a cost, as research shows that replacing a lost employee can range from 30% to 200% of their annual salary. So, for example, if an employee earns the UK average salary (£35,724), this could cost between £10,700 and £71,000.
This cost alone can be tough to swallow, but if retention becomes a widespread issue, it can really start to damage your bottom line.
While some turnover is inevitable, being able to pinpoint when, how, and why you are losing talent enables you to proactively address any issues and put retention measures in place.
Improving retention rates also has a positive ripple effect by improving the morale, engagement, and productivity of your team. Plus, a high retention rate can improve your reputation as an employer, further reducing the recruitment costs discussed earlier.
How to calculate employee retention rate
Employee retention rates are typically measured as a percentage, with the aim being the highest percentage possible.
Here’s how to calculate it:
- Determine the time frame you want to measure—this could be monthly, quarterly, annually, or any period that suits your needs.
- Calculate the number of employees who remained with your company during this period. This means those who were present at the start and still employed at the end of the period.
- Divide this number by the total number of employees at the start of the period.
- Multiply this figure by 100 to get the retention rate as a percentage.
For example, let’s say you want to consider the annual retention rate of your company:
- At the start of the year, you had 200 employees.
- By the end of the year, 166 of those employees remained.
Using the formula, your retention rate would be:
- 166 / 200 = 0.83
- 0.83 x 100 = 83%
- Retention rate = 83%
This indicates that 83% of your employees stayed with the company throughout the year. Tracking this metric regularly allows you to identify trends and evaluate the impact of your retention strategies, helping you maintain a stable and engaged team.
Interpreting your employee retention rate
Once you’ve calculated your retention rate, you need to understand what it means for your organisation.
85-90% is typically seen as a good employee retention rate, indicating a positive work environment where employees feel satisfied. This suggests that your recruitment and retention strategies are effective and that employee engagement is strong.
On the other hand, low retention rates may signal potential issues within the workplace that need to be addressed, such as:
- Dissatisfaction with management
- A lack of career development opportunities
- Poor work-life balance
It’s important to note that some turnover can be beneficial. It can create opportunities for internal promotions and lets you bring in fresh perspectives that can help drive innovation and prevent stagnation.
Regularly calculating your retention rate also allows you to recognise trends and track the impact of your retention strategies and any changes in business strategy or circumstances, such as the completion of a major project, the fallout from a team restructure, or a change in office location. This ongoing assessment helps you identify the key drivers that positively and negatively impact your ability to retain talent.
6 tips to improve your employee retention rate
Having discovered your retention rate, it’s time to act. From the way you hire to the way you develop your staff, there are a number of ways you can improve employee engagement and retention.
Let’s explore some of our top tips for improving your employee retention rate.
Hire the right candidate
It may sound obvious, but one of the most effective ways to strengthen employee retention is to hire the right people from the outset.
Improving your quality of hire involves adopting a skills-based approach and ensuring alignment with your values, mission and company culture. This includes reviewing your interview techniques and implementing competency-based interviews.
Mastering the interview process will help you find candidates who possess the necessary skills and fit well within your organisation. This not only benefits you as an employer but will mean they are more satisfied and engaged with their job, open to development opportunities, and keen to stick around for the long haul.
Provide comprehensive onboarding
Studies show that nearly a third of new hires leave a job within the first 6 months.
Retention begins on day one, and an effective onboarding process can set the tone for the entire employee experience, ensuring they feel welcomed, informed, and integrated into your culture.
It’s more than just paperwork. Onboarding involves providing proper training, clarifying the expectations of the role, helping them get to know their colleagues, and familiarising them with key organisational values.
Implement competitive compensation
Competitive compensation is crucial for attracting and retaining top talent.
According to Totaljobs research, 3 in 10 workers would start looking for a new job if their next pay rise doesn’t meet expectations.
With 73% of people also seeing salary as the biggest influence on whether they apply for a job, conducting regular salary benchmarking can help you stay competitive within your region and wider industry.
Offering appealing benefits packages is also essential, with 44% of people willing to skip a pay rise in order to get their most desired benefit. This can include:
- Flexible working
- Health insurance
- Pension contributions
- Paid time off
Offer career development opportunities
Providing career development opportunities is vital for retaining high-performing and ambitious staff.
Research from Totaljobs shows that 7 in 10 people have left a job due to a lack of learning and development opportunities, while Deloitte found that companies with a strong learning culture have 30%-50% higher engagement and retention rates.
Career development goes beyond training—it’s about showing employees a clear path for progression. Forbes reports that 63% of employees who quit their jobs in recent years did so due to a perceived lack of promotion opportunities.
By investing in your employees’ growth and demonstrating a commitment to supporting their long-term ambitions with initiatives like succession planning, you can foster loyalty and build a more skilled, committed workforce.
Listen to your employees
According to the Society for Human Resource Management, nearly half (47%) of people cite company culture as their reason for leaving a job.
However, you can significantly improve retention, engagement, and satisfaction by actively listening to your employees and taking their feedback on board. Research shows that employees who feel heard are 4.6 times more likely to feel empowered at work, with productivity and loyalty benefiting as a result.
To put this into practice, consider using employee engagement surveys, creating employee resource groups, and conducting regular one-to-one meetings. These practices can create a culture of open communication and strengthen your efforts to retain valuable talent.
Enable good work-life balance
A good work-life balance is fundamental to employee satisfaction, making flexible working options and a generous annual leave allowance essential for reducing employee turnover rates.
In fact, almost two-fifths (38%) of workers would skip their next pay rise if they were able to work flexibly.
For many, flexible working and work-life balance are essential for their well-being. For parents, it’s often a necessity. Totaljobs research found that 84% of mothers face challenges returning to work after maternity leave, with only 31% having access to flexible working options.
By offering, promoting, and encouraging flexible working and the use of annual leave, you can lay the foundations for a more satisfied and committed workforce, contributing to long-term retention and success.
Building a stable workforce
Cultivating an engaged, loyal and productive workforce begins with understanding and tracking your employee retention rate. Doing so not only reflects the health of your people strategy, but also allows you to combat the root causes for employee churn.
By leveraging this insight, and others gleaned from employee feedback and exit interviews, you can implement strategies like skills-based hiring, robust onboarding, salary benchmarking, career development pathways, and flexible working — all with the aim of fostering a stable and committed workforce for years to come.