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How to Calculate and Improve Your Employee Retention Rate

Isidora Markovic
Isidora Markovic

Attracting, training, and retaining talent can account for as much as 70% of a company’s costs.

Before employees can even begin to contribute to a business’s profit, the average cost per hire is $4,129 - this is made up of the time to find and recruit a candidate. After that, a company faces onboarding costs, to get people operational quickly, and ongoing training cost, to make sure employees are equipped with the knowledge to excel.

Over time, employees become more valuable, contributing to your bottom line more than they detract from it. They are an ‘appreciating asset’.

economic value of an employee to an organization over time

SOURCE: Bersin by Deloitte

This means that losing the talent you’ve worked hard to attract and train negatively impacts your bottom line, while a better-than-average employee retention rate will keep you ahead of competition. But first things first…

What is employee retention rate?

A company’s employee retention rate simply refers to the percentage of employees who remain at the business over a given time period.

Employee attrition (also known as ‘turnover’ or ‘churn’) is the opposite of retention. Voluntary attrition can indicate issues with culture or simply an aging workforce. A high level of terminated employees may point to problems with compliance, knowledge or training.

Employee retention rate statistics vary from industry to industry. What may be considered high in one sector could be average or even a low employee retention rate for another. Currently, the technology and retail sectors have higher turnover rates than Healthcare and Pharmaceutical sectors.

Various factors impact employee retention figures in different sectors. In the case of the technology sector, there’s lots of competition for talent. In others, like media and entertainment, work is particularly project focused so people generally aren’t recruited for long periods.

Usually, it’s desirable to increase your employee retention rates. A lower employee retention rate results in higher staff costs. You end up spending more time and money finding, hiring, and training staff.

That’s why a company’s employee retention matters so much. Constantly replacing valued team members can be a bottom line drain. It can also adversely impact productivity, engagement and motivation of the wider workforce by dampening morale or triggering a domino effect of departures. Retaining your best talent, on the other hand, helps you stay ahead of your competition and keeps you in business.

But before you start planning to improve employee retention, it helps to know where you stand currently…

Calculating employee retention rate

Businesses may use a few employee retention rate formulas to get a full picture of their business and the challenges they face. Employee retention rate meanings can be used to identify hiring cycles, to give an overall indicator of employee engagement throughout the business, to assess the kinds of employee turnover being experienced, or to identify if a particular department is losing staff faster than another.

In all cases, you’ll need to know two staff volume figures:

  1. How many employees you have at the start of a period

  2. How many you had at the end

Divide the number of employees who were still with you at the end of a specified period by the number of employees you had at the beginning. Then multiply this figure by 100 to give you the employee retention rate percentage.

So, if you started 2020 with 150 employees and ended the year with 145, your annual employee retention rate is 96.66% (145 ➗ 150 X 100 = 96.66)

If you’re interested in more granular detail of employee retention, simply restrict the figures to the period, department, or type of turnover you’re interested in knowing more about.

Once you have the employee retention rate calculated, it’s important to compare it with the benchmark for your industry.

While the 96.66% retention rate calculated above might seem great, if you’re in construction, it’s a little higher than the average employee retention rate calculated for US construction by the Bureau of Labor Statistics.

So, it’s not so great if you’re a Californian construction company. Understanding industry standards helps to put employee retention rates into perspective.

Why employee retention rate matters

Employee retention rates indicate the health of your business. After all, your company is only as strong as the people within it. Employee retention rates can signify workforce engagement levels, how effective your hiring and onboarding processes are, and also influence your company’s success.

Some employee turnover is unavoidable and people will always move onto new roles or retire. However, losing your top talent or turning over staff faster than you can replace them has wide-ranging impacts on a business.

Losing employees can cost 33% of that person’s annual salary. That estimate doesn’t even begin to take in the full ripple effect - disruption to the rest of the workforce, lowered team morale, lost customer relationships, and future innovation. These losses can’t be quantified in dollars.

Ultimately, the higher your employee retention rate, the stronger your business and the more effective your processes and workforce as a whole are.

How to improve employee retention rates

1. Make the right hire

Great employee retention begins with thoughtful recruitment. Begin by identifying candidates that are a good match for a role and company culture. Culture and a candidate’s aspirations are just as important as ensuring they have the skills needed to perform.

The longer someone is with your business, the more value they are able to provide. Matching candidates for the business, as well as the role, will improve longer-term retention.

2. Invest in continuous learning and development

Continual development and clear paths for advancing in a career keep the right employees with a business. Learning engages and motivates - opportunities to expand knowledge and advance in a career differentiates one employer for the next, breeds innovation and keeps current employees loyal.

Millennials and Gen-Z in particular, view career development opportunities as one of the most important benefits a company can offer.

3. Improve internal communication

Clear and ongoing communication between employees and their managers is crucial to retaining employees. Transparency and the breakdown of siloed work, achieved by effective communication, helps employees to feel valued and satisfied.

Regular check-ins are a great way to keep in touch with employees, address concerns and build relationships within the workplace. Mentoring between senior and junior employees can also support workplace friendships.

4. Align people with your vision and mission

“The majority of employees in the corporate world feel “disengaged”; they are agitating for decisions and behaviors that they can be proud to stand behind and gravitating toward companies that have a clear, unequivocal, and positive impact on the world.” - Confronting the purpose gap, McKinsey Institute

What is your company’s reason for being? The answer to this question is your unique selling point (USP) as an employer, and should be imparted on employees from onboarding onwards, and reinforced at repeated intervals in all cross-company communications thereafter.

Humans are purposeful by nature - it’s what gets us out of bed each morning. We need a ‘why?’ before we take action, so it follows that without a strong and consistently communicated purpose for employees to rally behind, they won’t be motivated to perform, or drive your success.

Companies rated highly on ‘purposeful mission’ experience 49% lower attrition.

5. Leverage technology

In order to improve communication, instil a sense of purpose, check-in with employees, deliver ongoing training to improve overall employee wellbeing, and by extension, your retention rate, you need to first be able to reach them.

80% of the world’s workforce is deskless and, alongside this, have a new set of expectations from employers. With less time to dedicate to learning (the average being just 4 minutes a day!) and shortened attention spans, they are looking for technological solutions that mirror the ones they use in their leisure time (e.g. social media apps on smartphones).

eduMe is a mobile based training tool that gets the right message, to the right people at the right time, no matter where they are. Our powerful all-in-one tool is built to engage (and retain) the modern worker. With an open API, numerous integrations and an ever-expanding feature list, it enables you to better train, inform, survey and assess people from one place.

To find out what we could do for you, put your details in below 👇