Employee retention rate – metrics to keep in mind to increase it

Employee retention rate

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Employee retention rate – metrics to keep in mind to increase it

Employee retention rate

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Employee retention rate refers to the percentage of employees who stay with a company over a specific period. A higher retention rate means that a business can maintain its workforce, reducing costs associated with hiring, training, and lost productivity.

Employee retention is critical for several reasons:

  • Lower hiring and training costs
  • Maintaining organizational knowledge and expertise
  • Ensuring continuity and consistency in operations
  • Enhancing employee morale and company culture


Hiring a remote workforce

Factors affecting employee retention


Fair and competitive compensation packages are key to retaining employees. When employees feel they’re compensated fairly, they’re more likely to remain loyal to the organization.

Work environment

A healthy and supportive work environment encourages employees to stay with the company. Providing resources, support, and opportunities for collaboration can improve retention rates.

Growth opportunities

Career advancement opportunities play a vital role in retaining employees. When employees see a clear path for growth, they’re more likely to stay with the organization.

Employee engagement

Engaged employees are more committed to their organizations. By fostering a sense of purpose and belonging, companies can increase employee engagement and retention rates.

Organizational Culture

A positive organizational culture that values transparency, inclusiveness, and diversity can contribute to higher employee retention rates.

Calculating employee retention rate


Employee Retention Rate can be calculated using this formula:

Retention Rate = (Number of employees at the end of the period – Number of employees hired during the period) / Number of employees at the beginning of the period × 100


Let’s say a company started the year with 100 employees, hired 20 new employees, and had 95 employees at the end of the year. Using the formula, the retention rate would be:

Retention Rate = (95 – 20) / 100 × 100 = 75%


Hiring and retaining top talent


Terms to follow up closely

Overall turnover rate

The overall turnover rate in a company refers to the percentage of employees that leave the organization within a given time period, typically one year. This rate can provide insight into the company’s employee retention and satisfaction levels. A high turnover rate might indicate problems within the workplace, such as poor management or lack of job satisfaction, while a low turnover rate may suggest that employees are content and engaged.

It’s important to monitor and manage the overall turnover rate, as high rates can lead to increased recruitment and training costs, reduced productivity, and decreased morale among remaining employees. Employers should strive to address any underlying issues that contribute to high turnover and aim to create a supportive work environment to retain top talent.

Voluntary turnover rate

Voluntary turnover rate in a company refers to the percentage of employees who leave the organization on their own accord, rather than being terminated or laid off. This can be calculated by dividing the number of employees who voluntarily leave by the total number of employees in the organization, and multiplying the result by 100.

It’s important for companies to monitor their voluntary turnover rate and take steps to address any underlying issues that may be contributing to employee departures.

Involuntary turnover rate

Involuntary turnover rate in a company refers to the percentage of employees who are terminated, fired, or laid off by the organization.

A high involuntary turnover rate may indicate problems with employee performance, job fit, or organizational restructuring, while a low rate may suggest effective talent management practices and a stable work environment. It’s important for companies to monitor their involuntary turnover rate and take steps to minimize any negative impact on employee morale and productivity.

Improving employee retention

Competitive compensation packages

Offering competitive compensation packages, including salary, bonuses, and benefits, can help attract and retain top talent. Conduct regular salary benchmarking to ensure your compensation packages remain competitive in the market.

Employee training and development

Investing in employee training and development can improve retention rates by providing employees with the skills and knowledge they need to grow within the organization. Create opportunities for professional development through workshops, seminars, and mentorship programs.

Effective communication

Open and transparent communication helps build trust between employees and management, promoting a sense of belonging and loyalty. Foster a culture of open dialogue through regular town hall meetings, feedback sessions, and accessible communication channels.

Work-life balance

Promoting work-life balance can improve employee satisfaction and retention. Implement flexible work schedules, remote work options, and policies that support employees’ well-being.

Recognition and rewards

Recognizing and rewarding employees for their hard work and accomplishments can boost morale and increase retention rates. Develop a recognition program that includes regular feedback, public acknowledgment, and meaningful rewards.

Measuring the success of retention strategies

Regularly evaluating the effectiveness of your retention strategies is crucial for continuous improvement. Track retention rates over time, and gather employee feedback to identify areas of success and areas that need improvement.


Q.What is a good employee retention rate?

A.A good employee retention rate varies by industry and company size. Generally, a retention rate above 85% is considered good, while a rate above 90% is considered excellent.

Q.How does employee turnover affect an organization?

A.High employee turnover can lead to increased costs for recruitment, training, and lost productivity. It can also disrupt team dynamics, weaken company culture, and erode organizational knowledge.

Q.What are some common reasons employees leave a company?

A.Common reasons include lack of career growth opportunities, dissatisfaction with compensation, poor work environment, lack of work-life balance, and lack of recognition.

Q.What is the difference between employee retention and employee turnover?

A.Employee retention refers to keeping employees within an organization, while employee turnover refers to the rate at which employees leave the organization. A high retention rate usually translates to a low turnover rate.

Q.How can organizations improve employee engagement?

A.Some ways to improve employee engagement include providing opportunities for growth and development, fostering a sense of purpose and belonging, promoting open communication, and recognizing and rewarding employees’ accomplishments.

Improving employee retention rate is essential for long-term organizational success.

Understanding the factors that affect retention and implementing strategies to address them, you can create a loyal and committed workforce. Remember to continuously measure the success of your retention strategies and make adjustments as needed to ensure ongoing progress.

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