How to Calculate and Improve Your Employee Retention Rate 

by Team RallyBright in April 5th, 2022

In today's competitive hiring market, employee retention is more important than ever. What was initially dubbed The Great Resignation is becoming more aptly described as The Great Reshuffle, since employees are more likely to be transitioning to new positions than leaving the workforce. The current atmosphere makes hiring more difficult, but it can also mean you should be putting more effort into retention as recruiters seek passive job seekers who are already employed. As you begin to focus on retention efforts, it's helpful to consider your current employee retention rate and ways you can improve it. 

Your employee retention rate is a metric that defines the percentage of employees who remain employed by your organization for a specific time frame. It can help you determine if you're investing enough in employee compensation and otherwise providing an attractive working environment. 

How to Calculate Employee Retention Rate

Tracking your employee retention rate requires you to define a specific time period to measure. Some companies calculate their employee retention rate for an entire year while others prefer to use shorter time periods to investigate trends and seasonal differences. Most typically, employee retention rate is evaluated on a biannual or quarterly basis. 

Once you've determined the time period you intend to use, you'll need two additional data points: The number of employees employed on the first day of the given time period, and the number of employees who remained employed through the entire length of the time period. This should not include new hires during the time period. For example, if your employee headcount was 30 at the beginning of Q1 and is 27 at the end of the quarter with 4 new hires, the numbers you need are 30 (beginning count), and 26 (number of employees who were employed the entire time).

To calculate your retention rate, divide the number of employees that stayed with your company by the number of employees you started with, and multiply the number by 100.

(Remaining Headcount) / (Beginning Headcount) x 100 = Employee Retention

Using the example above: 26/30 = 0.866 x 100 = 86.6, or 86.6%.

Why Employee Retention Rate Is Important

Your employee retention rate provides you with a clear number to describe the percentage of employees that choose to stay with your organization. However, it can also serve as the basis for a variety of other important metrics that can help you understand more about the needs of your employees and your organizational performance. Your employee retention rate can help you learn about these crucial elements of running your business more efficiently.

How to Cut Costs

Most business leaders are aware that recruitment is more expensive than retainment. The average cost of hiring a new employee is $4,000. Yet, the total cost of turnover is more than just the cost of recruiting a new employee. Consider how these costs created by voluntary turnover add up to substantial losses.

  • Lower production while the role remains unfilled
  • Recruitment costs
  • A decline in morale when an employee leaves
  • Administrative hiring costs
  • Lost customers 
  • Training costs
  • Slowed company growth due to the loss of company knowledge

According to Gallup, voluntary turnover costs U.S. businesses a trillion dollars every year. Yet, the more important number is revealed later in the study: 52% of voluntary exiting employees say their manager or organization could have done something to prevent them from leaving their job. There are a number of ways to improve your employee retention rate, but it starts with understanding the factors that lead to voluntary turnover. A recent RallyBright study revealed that belonging plays a unique role in predicting turnover intent. In organizations where belonging was reported as high, only 2% of employees indicated they thought, often or very often, about leaving their current job. If belonging was indicated as low, that turnover intent increased to 26.%.

Ways to Boost Performance

Retention is about more than the employees who stay and those who leave. It's about the reasons your employees choose to seek employment elsewhere. Low engagement and job dissatisfaction lead to burnout, which leads to turnover. Before reaching that point, employees typically show signs of low engagement, such as diminished productivity and lower overall performance. By learning to recognize the signs of burnout, you can improve your company culture and help hang onto your people – which will pay off in better performance. 

How to Successfully Cultivate Talent 

When today's employees become tomorrow's company leaders, everyone wins. Today's employees are interested in development opportunities. They want employers to invest in their future within the organization. In fact, 94% of employees say that they would stay at a company longer if it simply invested in helping them learn. This number is a powerful indicator that organizations that invest in internal talent development can curb turnover and its associated costs.  

Ways to Improve Company Culture

Your company culture is closely related to the satisfaction of your employees, potential for burnout, and turnover rate. A culture that emphasizes both inclusion and high-quality collaboration builds a sense of belonging shared by every employee, which in turn boosts job satisfaction. In fact, in RallyBright’s survey, 95% of respondents who rated collaboration as high at their organization also reported being satisfied or very satisfied with their job. That percentage dropped to 67% for employees who rated collaboration at their organizations as low. The data is clear: Highly inclusive and collaborative cultures are environments where people like their jobs and are likely to stay at them. 

How to Improve Your Recruitment and Onboarding Processes

30% of job seekers have left a job within the first 90 days of starting, and 50% of employees voluntarily leave within the first two years of their employment.

Reasons that employees quit so soon include:

  • Feeling overwhelmed and neglected
  • Feeling underqualified
  • The job was different than expected
  • Lack of training

Effective recruitment and onboarding processes are designed to address these problems before they occur. By clearly defining job roles during the recruitment process, you are more likely to attract qualified candidates and set clear expectations. When you create a strong onboarding process that involves managers, coworkers, and ongoing training, new employees have an opportunity to get comfortable in their roles.

Improving Your Retention Rate

The true purpose of calculating your employee retention rate is to ensure that you're investing in the right methods to keep it as high as possible. At its core, retention is all about employee satisfaction and how your employees relate to your organization. Consider how these strategies can help you improve your retention rate.

Improve Your Hiring Tactics

Hiring the right employees begins with an accurate job description. By providing a clear description of the role and targeting candidate personas, you can improve the quality of your applicant pool. Maintain your diligence during the hiring process to ensure you find the right fit for both parties.

Build an Inclusive Culture

Inclusion is the foundation that drives performance. 75% of organizations with frontline decision-making teams with a diverse and inclusive culture exceed their financial targets. By creating an inclusive culture, you encourage all team members to perform at higher levels. The resulting collaboration pays off in more innovation and better team performance.

Show Appreciation

When polled, 63% of workers revealed that they feel underappreciated by their manager on a daily basis, and 46% have left a job because they feel unappreciated. Clearly, appreciation leads to retention. However, that's not all it has to offer. 69% of employees say they'd work harder if they felt like they were better recognized. Simply thanking your employees for a job well done or recognizing the effort they put into their jobs can pay off in higher productivity, too. 

Offer Adequate Compensation

Money isn't everything, but most employees do want adequate compensation for their contributions at work. Furthermore, compensation doesn't begin and end with salary. The compensation you provide your employees should be relevant to their needs. This may include health benefits, paid vacation, flexible scheduling, bonuses, and other incentives.

Understanding Your Employee Retention Rate Can Strengthen Your Team

Calculating and understanding your employee retention rate can help you get a better understanding of the ways you can help your team improve. It's one of many metrics that offer insight into what drives better performance, improved collaboration, and a quality workplace culture. By comparing your employee retention rate to that of your competitors or industry benchmarks, you can ensure you're doing what’s needed to maintain the satisfaction of your people and drive organizational success. After all, your retention rate is closely related to the factors that drive performance. By improving it, you can build stronger teams that elevate organizational performance and impact. 

Protect against turnover by building a positive and inclusive organizational culture. The RallyBright Inclusive Collaboration Toolkit helps you measure, diagnose, and improve the cultural metrics that drive retention, engagement, and job satisfaction. Learn more by scheduling a demo. 

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