Employees are the driving force behind your business, and if you’re training employees up just for them to move on before you can reap the rewards of their experience, you’ll be missing out. Letting your employees go to the competition will give them the advantage, so it’s essential that you know how to keep retention rates high and turnover low. Even if your business has a great employer brand that attracts high-quality candidates, the extra money needed to hire new employees constantly can put a strain on you - and this can be tough to come back from.
Being able to calculate your employee retention rate will help you analyse what works and what doesn’t, and it’s often the first step in creating your retention rate strategy. Keep reading to learn all about retention rates and how to reduce turnover while improving your workforce as a whole.
What is the employee retention rate?
Employee retention rate is a popular metric for business leaders to track. It gives you a better idea of the percentage of employees who remain at your company over a certain period of time, letting you know how you're doing as a company and leader as a whole. A higher retention rate suggests that your employees are happy and engaged enough to continue working for you rather than moving on to another company. A lower retention rate might indicate that something needs changing, like poor management, lack of recognition or incentives, or an issue within the company’s culture.
There are plenty of pros to working on boosting your employee retention rate, including saving you both time and money in the long run. Hiring and training new employees can take a lot of your budget, so being able to keep the employees that you’ve already invested in is an excellent asset. Also, the last thing you want to do is take the time to train people in your field just for them to hop over to a competitor and have them utilise your skills. Retaining your experienced employees lets you keep benefitting from their valuable institutional knowledge, insights into your business, and tailored expertise.
Is the employee retention rate the same as the turnover rate?
Your employee retention rate is actually the complete opposite of your turnover rate! Your company’s employee turnover measures the percentage of employees who leave within a certain period, while the employee retention rate calculates how many stay. Both a low retention rate and a high turnover rate point to the same issues within your company, so they need to be dealt with quickly. You don’t necessarily need to keep track of both metrics, but some companies like to as they can use them to assess the effectiveness of their retention strategies.
Working out your employee retention rate
You only need two pieces of information to calculate your employee retention rate: the number of employees you have at the beginning and end of the timeframe you choose to focus on. For example, if you wanted to know your retention rate for the year, you’d need to know how many employees you had in January and December. If you were looking on a month-by-month basis, you’d need the numbers for the start and end of said month.
You can then use this information with the following formula to find out the retention rate:
(End number of employees / Start number of employees) x 100
For example, if you started the year with 200 employees and had 140 still employed at the end of the year, your retention rate would be worked out as:
(140 / 200) x 100 = 70%
This calculation gives you an overall idea of how your business is looking after the period of time you’re looking at. To get more of an insight into how you can improve retention, measure your rates more specifically by looking into teams, departments, or job roles. Doing this will let you see where you really need to improve and help you get a jump start on creating a strategy to turn poor rates around.
You might see fluctuations during big company changes, like significant policy changes, organisational restructuring, or new management. Being able to identify the leading cause of higher retention should give you a head start in fixing it so the company doesn’t suffer any more than it has done already.
What employee retention rate should you be aiming for?
As a general rule of thumb, 90% retention is considered a good rate to strive for because it indicates that your company is offering enough benefits to its employees that they want to stay, but with a little bit of leeway to account for natural turnover.
Don’t panic if your retention rate is higher or lower than this average. Plenty of things factor into whether your rate is good or not, including the size of your company, the industry you’re in, and the job roles you offer. For example, employees in hospitality will have a higher turnover rate because of the nature of the business and how it’s often seen as a stepping stone for future employment.
How to improve employee retention rate
If you find a problem with your employee retention rate, the best thing to do is form a strategy as quickly as possible and stick to it, including:
1. Take the time to recognise your employees
One of the best and most effective ways leaders have found to keep their employees happy is to take the time to recognise them. Sounds simple, but one of the biggest reasons why employees move on is because they’re not feeling appreciated enough. So, supporting employee recognition is a great way to boost retention and build a stronger workforce.
Make sure you consistently practice recognition tactics and build them into a core part of your company’s culture. If some of your employees are getting recognised while others aren’t because you’re too busy or forget, this can negatively impact retention instead.
2. Listen to your employees and learn what engages them
When you don’t make an effort to engage your employees as much as possible and listen to their needs, you’ll probably see a lower retention rate as they move on to find something better. However, engaging employees sounds much easier than it is, as what works really well for some employees might not work at all for others.
As a leader, we highly recommend that you listen to tailored feedback and offer different solutions for your workers. A popular example of engaging employees includes giving them a real voice in organisational matters, but again, this might not work for everyone. Listen to your employees and give them a safe place to voice their concerns - such as staff engagement surveys!
3. Offer incentives!
Incentives are a huge part of retaining employees, because most people thrive when working towards something. By regularly reviewing and adjusting salaries, as well as offering bonuses, extra holiday days, and extra benefits, you show your employees how much you value them. When your employees can see that you value them more than extra revenue or attendance rates, they’re much more likely to want to stay. Plus, offering competitive incentives can help push them to work harder - win-win!
4. Utilise employee retention software
Employee retention software can cover a range of processes and software tools to help boost your retention rate. The software can help you determine why your employees are leaving, which you can then use to change the arising issues to prevent any extra turnover. You can also use this information in the onboarding process to help get off on the right foot with your new employees, hopefully stopping you from seeing a higher turnover in the future.
There are plenty of types of employee retention programmes to choose from, including more extensive options like HR Information Systems (HRIS) to simpler alternatives like employee culture surveys. We recommend enlisting the help of a professional to help you make the most of your employee retention software, as you can identify issues within your workforce, but if you don't know how to rectify them in time, your efforts might be in vain.
Final thoughts
Employee retention rate is an important statistic to measure as a company leader or employer, as it tells you how effective your company culture and employment engagement strategies are. Calculating retention rates is easy enough as long as you know how many employees you had at the start and end of the timeframe you're looking at.
We're big advocates for breaking the retention rate down and looking into certain teams, time periods, and departments to get a better insight into how each area of the business is performing. Some of the best ways to boost retention rates include working on your employee engagement, offering incentives, and using employee retention software, and we can help you with this at HR Coach.
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