Employee Retention Rate

An organization’s employee retention rate is a measure of its ability to keep employees. It measures how many employees remain with a company for a specific period of time compared to the total number of employees in the same timeframe.

There are a number of reasons why knowing its employee retention rate can benefit an organization. 

• Decreased costs: Research studies indicate that a company’s replacement cost for an employee is between six and nine months’ salary. Staying on top of and managing retention rate can help a company reduce overall costs. 
• Identified recruitment issues: A company’s retention rate indicates the areas on which the company focuses. Understanding its employee retention rate will help a company determine where issues or problems need to be proactively addressed. 
• Increased employee productivity: Typically, an employee will become more productive the longer they remain with an organization. This is because they learn how to work more quickly, make connections faster, and better complete tasks. High turnover rates lead to continuity disruption, which can cause decreased productivity. 
• Improved employee engagement: Understanding employee retention rate can help management and human resources work on essential aspects of employee engagement. This can include developing talent pipelines, improving employee morale, and building effective teams. 

Equally important, understanding employee retention rate helps management reveal issues that critically affect an organization. For example, high-potential employees with in-demand skills are frequently recruited by other companies. Understanding employee retention rates will help the company identify areas of weakness so they can improve retention for their most valuable employees.

Employee Retention Rate Example

At the beginning of 2023, TechStartupXYZ had 100 employees. By the end of the year, 85 of the original employees remained with the company, while 15 left for a variety of reasons. 

• Employees in January 2023: 100
• Original employees remaining in December 2023: 85

Follow these steps to calculate the company’s employee retention rate for 2023:

1. Divide the number of employees remaining (85) by the number of original employees (100). The result is 0.85
2. Multiply the result (0.85) by the number of employees working in January 2023 (100).

Employee retention rate = (85/100) x 100 = 85%

In this example, TechStartupXYZ has a good retention rate of 85%. The company might benefit by identifying the reasons behind the 15% turnover rate. This would help management work on areas for improvement in their retention strategy.