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How to Calculate Employee Retention Rate

Happy employees remain committed to their roles, enhancing company culture and improving the overall success of your organization. How do you keep employees fulfilled in a job market filled with competitive employers and incentives?

The first step is learning how to calculate employee retention rate. Employee retention rate refers to the number of employees that stay with your company during a specific recording period.

Tracking employee retention rate will expose potential issues surrounding pay, benefits or culture you may not know existed otherwise. Let’s discuss what employee retention rate is, how to calculate and analyze it, and most importantly, how to improve it.

What is Employee Retention Rate, and Why Does it Matter?

Some employers confuse retention rate with turnover rate. However, they are each other’s opposite. Employee turnover rate measures how many employees leave during a specific recording period, while employee retention rate measures how many employees stay.

Calculating retention rate is just as important as calculating turnover. Sometimes referred to as the stability index, it gives you an in-depth view of your current staff without the distraction of new hires. Once you make a habit of tracking retention rate, you can identify specifics like at what point and from which department most of your employees leave.

This can reveal what works and what doesn’t, including onboarding, training, leadership, incentives and much more. It also keeps costs down!

Research shows that replacing an employee can cost more than $4000. Other studies suggest that the cost of replacing an employee is much higher, at 50% to 60% of the new hire’s salary. These statistics don’t sound so far-fetched when considering the price of background checks, exams, paid time spent on interviewing and training, and much more.

A low retention rate may be why your organization is struggling to survive or the culprit behind feeble profits. Luckily, there’s a solution, and it starts with learning how to calculate retention rate.

How to Calculate Retention Rate

Before calculating the retention rate, you must determine a recording period. Most companies track the metric annually, but you can also track it bi-annually or quarterly.

Employers with a seemingly high turnover often ask how to calculate monthly retention rate. Regardless of the duration of your recording period, the following steps will yield an accurate result.

  1. Count how many employees you have at the beginning of the period. Do not add new hires or added positions to the headcount.
  2. Count how many employees you have at the end of the period, not including new hires and added positions.
  3. To get the retention rate, divide the number of employees at the end of the period by the number of employees you started with. For example, if you started with 74 employees, but ended with 65, your answer would be 0.87.
  4. Multiply your quotient by 100 to receive the results in percentage form. The above example would result in 87%.

Employee Retention Rate Formula: Number of employees remaining / number of employees you started with X 100.

You can also use the calculation to track retention across a specific department or team. Doing so will help you pinpoint specific issues surrounding leadership, work-life balance, pay and more. However, to identify and resolve the problem(s), you must analyze your results.

How to Track Employee Retention Rate

There are multiple ways to track employee retention rates. Each tactic has a slightly different goal, so utilizing more than one will provide you with a multi-faceted look at your company’s stability index. Let’s discuss two of the most popular procedures for analyzing retention rates.

Cohort Analysis

Cohort Analysis is a common way to analyze the retention rate of students, customers, and in this case, employees. The tactic provides employers with a thorough look at a specific group of employees. Therefore, it is especially beneficial when analyzing retention under specific interviewers, trainers and managers, and across departments or teams.

However, successful cohort analysis requires long-term data collection. The most efficient way to analyze retention per cohort is to group employees by their start month and then use the retention rate formula to track each group.

After tracking each cohort for a year, you will have essential data and an overall retention rate at your fingertips! For instance, did the retention rate lower when a new manager took over? Did one hiring process prove more effective than another? Is there a specific time your employees begin leaving, suggesting they feel unappreciated?

You can also complete a cohort analysis of specific departments and teams. Doing so will assist you in adjusting leadership, training processes, hours and flexibility.

Survival Analysis

Survival analysis is a slightly more in-depth tactic for tracking employee retention rate. Many HR professionals consider it an extension of the cohort method because it compares how different variables affect the retention rate of two or multiple cohorts.

For example, one study utilized survival analysis to determine the retention rate of U.S. Air Force officers. One of their analyses compared the retention rate of officers with prior service experience to officers with no service experience. Officers who started with no service experience had higher retention rates.

The method helps you predict which employees are more likely to stay long-term and may drastically improve your number of successful hires. For instance, you may create one cohort of employees with less than five years of experience and another cohort of employees with more than five years of experience. Tracking which group has a higher retention rate over time will identify the type of candidate you should be hiring.

What is a Good Employee Retention Rate?

Now that we have provided you with all the tools necessary to calculate and track employee retention rates, you’re probably wondering, “How do I know what a good rate is?”

Generally speaking, 90% is a positive retention rate. However, this varies by industry. For instance, the hospitality industry has an extremely low rate. Be sure to research your work’s average rate before taking a course of action.

However, if the results of your comparative analyses are low across the board, your workplace’s morale is probably in dire need of change.

How to Improve Employee Retention Rate

Improving employee retention rate requires an investment, but it is worth making considering the cost of replacing an employee. More pressing than costs, is the crushed workplace spirit low retention rates cause.

When employees frequently come and go, it hinders progress and makes frustration the norm. Let’s discuss a few ways to improve your company culture and retention rate.

Professional Development

Fair pay, benefits and retirement make you a competitive employer, but financial incentive is not enough to sustain your employees long-term. Research has found that ongoing professional development is also a key component to a successful workplace.

Your employees need to feel valued and challenged to be happy. Approximately 65% of U.S. workers are actively searching for a new job, and after higher pay, career advancement is the top reason for their job hunt.

Build your team into an industrial commodity and then compensate them for rising to the challenge. You may be surprised to see the return on your investment. 


An engaged workforce is 21% more profitable and 59% less likely to leave their job. What exactly is an engaged employee? It is someone who feels committed and connected to their work.

Someone passionate about their responsibilities is more productive, a better leader and teammate, and less likely to become overwhelmed. However, employees expect their leadership team to foster engagement. According to the Society for Human Resource Management (SHRM), employers can accomplish this by:

  • Being committed to building a satisfying place to work
  • Leading by example
  • Showing faith in the future of the company
  • Viewing employees as their most crucial asset and investing in them
  • Building healthy, communicative relationships with employees
  • Equipping employees with the resources they need to complete their job
  • Trusting employees to make decisions

Improve Onboarding

A successful and thorough onboarding process is crucial to improving or maintaining your retention rate. Studies show that 86% of employees know whether they will stay within the first six months. Additionally, 23% reported that a clear description of their duties would increase their chances of staying.

SHRM recommends building an onboarding program that:

  • Discloses all job-related duties on day one, to both the new hire and current employees, to prevent competitive and resentful behavior
  • Helps the new hire adapt to company culture
  • Frequently checks in and assesses performance
  • Provides on-the-job training that isn’t overwhelming
  • Supplies a mentor
  • Checks in for three-to-six months
  • Checks in at a year to transfer the employee from training to professional development 

Final Thoughts

Pleasing every person you ever employ is impossible, but you should never stop striving to create a healthy work environment, complete with trust and communication. Doing so starts with learning how to calculate retention rate. It also requires a frequent collection and analysis of the metrics you find.

While sticking to the steps outlined in this article will take some time and money, it will also improve your retention rate and in turn, productivity.