How to Calculate Employee Retention: A Step-by-Step Guide

Employee retention is a crucial metric for any organization, reflecting its ability to keep employees engaged and committed over time. High employee retention rates are indicative of a healthy work environment, effective management practices, and satisfied employees. Conversely, low retention rates can signal potential issues such as poor workplace culture, lack of growth opportunities, or inadequate compensation. To gauge how well your organization retains its employees, calculating employee retention is a key step.

In this guide, we'll explain how to calculate employee retention, and how to analyze and interpret your retention data effectively. By understanding how to calculate employee retention, you can make informed decisions to improve your workplace and ensure long-term success.

Why Employee Retention Matters

Employee retention is more than just a number—it’s a reflection of how well your organization is performing in terms of employee satisfaction, engagement, and overall workplace culture. High retention rates often mean reduced hiring and training costs, improved productivity, and a more stable workforce. Low retention rates, on the other hand, can indicate problems that need addressing, such as high employee burnout, lack of development opportunities, or issues with leadership.

Regularly tracking your employee retention rate can help:

The Basic Formula for Calculating Employee Retention

Employee retention rate is a percentage that represents the proportion of employees who remain with an organization over a specific period. The formula is simple:

Employee Retention Rate=

{(Number of Employees at the End of a Period)/(Number of Employees at the Start of the Period)}×100

To calculate the retention rate, you need to know two key figures:

Number of Employees at the Start of the Period: This is the total number of employees at the beginning of the time period you're analyzing (e.g., at the start of the year or quarter).

Number of Employees at the End of the Period: This is the total number of employees who remain employed at the end of the same time period, excluding new hires during this period.

Step-by-Step Calculation Example

Let’s walk through an example of how to calculate your employee retention rate.

Step 1: Define Your Time Period

Determine the period over which you want to calculate retention. This could be annually, quarterly, or monthly, depending on your business needs. For this example, let's say we are calculating the annual retention rate for the year 2024.

Step 2: Identify the Initial Number of Employees

Let's assume you had 100 employees at the beginning of 2024.

Step 3: Identify the Number of Employees at the End

By the end of 2024, you still have 90 of those 100 employees (i.e., excluding any new hires).

Step 4: Plug the Numbers into the Formula

Now, calculate the retention rate using the formula:

Employee Retention Rate = (90/100​)×100 = 90%

This means your employee retention rate for 2024 is 90%, indicating that you retained 90% of your workforce over the year.

Adjusting the Formula for Different Scenarios

While the basic formula is straightforward, there are scenarios that might require adjustments to get a more accurate picture of your retention rate.

1. Excluding Temporary Employees: If your organization hires temporary or seasonal employees, you might want to exclude them from your retention calculation. Only consider permanent employees to ensure the rate reflects your long-term workforce stability.

2. Excluding Voluntary and Involuntary Terminations: Some organizations calculate retention by excluding involuntary terminations, such as layoffs or dismissals. This gives you a clearer picture of voluntary retention, which is more indicative of employee satisfaction and engagement.

3. Multiple Retention Rates: You can calculate separate retention rates for different departments, locations, or employee groups (e.g., new hires vs. tenured employees). This helps you to identify areas where retention is strong or weak.

Analyzing and Interpreting Employee Retention Data

Once you’ve calculated your retention rate, the next step is to analyze and interpret the results. A high retention rate is typically a positive sign, but it's essential to delve deeper into the data to understand the nuances behind the numbers.

1. Compare with Industry Benchmarks

Look at industry benchmarks for employee retention to determine how your rate compares with others in your sector. Some industries naturally have higher turnover rates (e.g., retail or hospitality), so it's crucial to contextualize your results.

2. Track Retention Over Time

Calculate retention rates for multiple periods (e.g., annually or quarterly) to spot trends. Is your retention improving, declining, or remaining steady? Tracking changes over time can help you identify the effectiveness of retention strategies.

3. Break Down Retention by Employee Segment

Analyzing retention by department, tenure, or role can reveal where issues may lie. For example, if new hires are leaving within the first six months, you may need to reassess your onboarding process or job fit.

4. Conduct Exit Interviews

Exit interviews with departing employees can provide valuable insights into why people are leaving and what changes might improve retention.

How ACHNET Can Help with Employee Retention

ACHNET offers a suite of tools designed to help businesses improve employee retention through data-driven insights and personalized development plans. With ACHNET, companies can:

1. Offer Coaching and Development: ACHNET’s coaching solutions help employees grow within their roles, making them more likely to stay with your organization long-term.

2. Enhance Onboarding: ACHNET’s tools support effective onboarding programs, ensuring new hires feel supported and integrated from day one, reducing early turnover.

By leveraging ACHNET's advanced technology and personalized coaching services, organizations can create an environment where employees feel valued, supported, and motivated to stay.

Track employee retention accurately

Calculating employee retention is a simple yet powerful tool for measuring your organization’s ability to keep its employees engaged and committed. By understanding your retention rates and analyzing them over time, you can make informed decisions to improve your workplace culture, leadership, and overall employee satisfaction. ACHNET’s comprehensive platform can help you track retention, implement effective strategies, and ultimately foster a more loyal and productive workforce.