What is an employee retention rate?

Employee retention rate measures the number of loyal employees over a given period, such as quarterly or annually. This When employees remain with your organization for long periods, you can reduce the recruiting and hiring costs.

The formula for retention rate calculation

To calculate the retention rate, follow these steps:

Calculate the number of employees retained

(Total number of employees at the start of the period) – (the number of employees who left during the period) = (the number of employees retained during the period)

Calculate retention rate

(Number of employees retained) ÷ (number of employees at the start of the period) x 100 = retention rate

How to perform a retention rate calculation

The following steps provide a guide for calculating your employee retention rate:

1. Determine your time period

Start by deciding the period for measuring the retention rate. Common options include a fiscal year, quarter, half a year or month.

If you want to compare retention rates across time, use consistent time periods. For example, you can compare quarter-over-quarter results or year-over-year retention rates.

2. Determine the number of employees

Count the number of employees at the start of a period. Count only employees working on the day your period started, not including new hires or employees you onboarded during the period.

For example, if you have 50 employees on January 1 and hire 10 employees during February, your retention rate calculation for the first quarter would start with 50 employees.

3. Subtract

Subtract the number of original employees remaining at the end of the period from the number of employees you started with.

For example, if you had 50 employees on January 1 and five left during February, by the end of the quarter, you’d have 45 of the original workers. Even if you hired 10 new employees in February, you still only kept 45 of the original team members from the January 1 count.

4. Divide

Divide the number of retained employees by the total number of employees at the start of the time period. Multiply that number by 100 to convert it to a percentage.

If you have 45 of the original team of 50 left, that’s 45 ÷ 50, or 0.90. Multiplying by 100 gives you a 90% retention rate.

Retention rate calculation examples

Here are additional examples of calculating the retention rate for your business:

Example 1

An advertising agency had 40 employees at the beginning of Q1. On the last day of Q1, 38 of the original employees still work there.

• Starting number: 40
• Retained employees: 38
• Divide the remaining employees by the total employees at the start: 38 ÷ 40 = 0.95
• Multiply by 100

In this example, the retention rate is 95%.

Example 2

A manufacturing company had 127 employees at the beginning of the fiscal year. During the year, 42 employees left.

• Starting number: 127
• Calculation for retained employees: 127 – 42 = 85
• Divide the remaining employees by the total employees at the start: 85 ÷ 127 = 0.669
• Multiply by 100

The retention rate is 66.9%.

Example 3

A call center has 65 employees at the beginning of the calendar year, and 49 remain at the end of the calendar year.

• Starting number: 65
• Retained number: 49
• Divide the remaining employees by the total employees at the start: 49 ÷ 65 = 0.754
• Multiply by 100

The retention rate for the call center is 75.3%.

What is a good employee retention rate?

Benchmark employee retention rates typically vary by industry. For example, retail businesses tend to have more turnover than law firms, particularly when the calculation period includes seasonal workers. A positive retention rate above 90% means less than one in 10 employees who began the period left during it.

Instead of comparing your retention rate to a perceived “best employee retention rate,” consider how to improve your existing rate. If your retention rate was 65% last quarter, you might aim to increase it to 75% for the next quarter.

Depending on the reasoning, you might not need to fix a low retention rate. For example, a retail organization measuring quarterly retention rate might have 100 employees on October 1 because it hired seasonal workers in preparation for the holidays. By January 1, only half of those workers might remain, but the company has likely planned for that decrease.

How to improve your employee retention rate

If you have a low employee retention rate or you want to improve your employee retention since it influences team culture, production quality or costs, you might follow these steps:

Improve your work culture

Managers can help establish a comfortable work culture through effective training and feedback. You can survey current employees to help you understand their concerns or schedule weekly team meetings to discuss improvements.

Improve hiring practices

Hiring the right employees can increase your retention rate, as candidates with aligned expectations are more likely to stay in a position long term.

Improve hiring practices with accurate job descriptions and detailed employee screenings, including reference and background checks. A skills-first approach can also help you find applicants with hard or soft skills needed for your role.

Offer better compensation, benefits and perks

Evaluate your compensation and benefits strategies, including base pay, bonuses, time off policies and employer-sponsored benefits.

Benefits can influence employees’ decisions to remain with your company. Talk to your human resources (HR) managers about incorporating perks like more flexible paid time off (PTO) policies or professional development training.

Define career paths and opportunities for growth

If your employees have growth opportunities, such as continued training or promotions, they may transition into new roles with your company. Employee development options might also include in-house training programs and PTO for industry conferences.

Meeting with employees one-on-one to discuss career plans and setting goals can help you provide the necessary resources and support.

Provide employee feedback

Employees generally want to know how they can improve, which also provides opportunities for recognizing their achievements. You might ask your Managers to give regular feedback outside of yearly reviews, such as through appreciation letters.

Encourage creativity

Giving employees autonomy can also help improve retention. Demonstrating trust in employees and encouraging decision-making can boost morale and empower team members to grow within your organization.

Support work-life balance

A good work-life balance helps employees be productive at work, while encouraging time for personal interests and responsibilities. Encourage employees to take vacations and provide flexibility to handle family situations, such as emergencies or child care needs.