A healthy employee turnover rate is one that’s high enough to ensure that your workforce is always fresh with new ideas and perspectives but not so high that it becomes costly. The right balance between keeping employees and recruiting new ones will help you grow your revenues and profits.
What is employee retention rate?
Employee retention rate is the percentage of employees who remain at your company during a certain period of time. You can calculate your retention rate by dividing the number of employees on the last day of a particular timeframe by the number of employees on the first day. For example, Q1 employee retention rate would be:
Q1 ERR = (# employees on March 31) / (# employees on January 1)
Most companies measure their retention rate on a quarterly or annual basis.
It’s important to track this metric because it can serve as a high-level indicator of employee satisfaction, onboarding and training effectiveness, and employee engagement. The closer your retention rate is to 100%, the better.
Employee turnover is costly
Hiring new employees isn’t cheap or easy, so keeping the ones you have is critical. Gallup estimates that onboarding replacements can cost half to two times an employee’s yearly salary.
And according to the “Financial Impact of Staff Turnover” report by the Hay Group, an organization with a turnover rate of 20% will incur costs over $1 million in the first year alone. These costs include:
- Hiring and training new employees
- Lost customer loyalty due to poor service or lack of product knowledge
- Decreased employee morale
- Poor work quality
- Lower productivity rates
- Increased absenteeism
What impacts employee retention rate?
A company’s culture, inclusivity, recognition, and benefits can all play a role in improving an organization’s retention rate. When employees work with colleagues who respect them, get placed on challenging, meaningful projects, and get rewarded for their hard work, they are much more likely to be and stay engaged.
Work-life balance can also contribute to a company’s retention rate. Offering more flexible work schedules and encouraging employees to take time off when they need to rest can greatly impact employees’ longevity at your organization.
The benefits of tracking employee retention rates
Employee retention rates are an important indicator of the health of an organization. Tracking your employee retention rate on a regular cadence can help you:
- Address problems before they become major issues
- Improve your company culture
- Enhance employee benefits to promote work-life balance
- Grow your recognition program
Make sure to ask your employees for direct feedback. Consider sending employees a quarterly, or even monthly, survey asking about their satisfaction at work and track how responses change after implementing new programs. You should also survey new employees to determine whether your onboarding processes are sufficient.
Employee retention rate isn’t just a statistic
When looking at your employee retention rate, it’s important to remember that it reflects your people. People who leave weren’t a good culture fit in the first place, didn’t get the flexibility or support they needed, or weren’t given the opportunity to grow and develop.
Maintaining a high retention rate is tough, and there’s no one-size-fits-all solution. You’ll have to do some research and figure out what works best for your company. But it’s important to remember that employee turnover is costly, so doing everything in your power to keep people on board makes business sense.