How to calculate the retention rate of employees?
In today’s candidate-obsessed market, recruiting the best candidates has become tougher than ever. Now, companies don’t select candidates; applicants get to pick the company. Therefore, improving the retention rate has become extremely important. Organizations are now focusing on retaining their top employees. Innovative recruitment strategies and an effective retention plan are vital for organizations. Companies must create a meaningful work environment to retain their star employees. For this, they need to ensure that there is no biased hiring in the company. They can use video interview software to eliminate any chances of unconscious bias and build a positive employee experience.
Your employee retention rate is a crucial business metric that highlights how many workers choose to stay at your company. Organizations with no pulse on employee retention tend to lose top performers. When potential employees leave, companies experience poor employee morale, low productivity levels, reduced company expertise, etc. Therefore, it becomes necessary to work on the retention rate. In the following blog, we will discuss what employee retention rate is, how companies can calculate it, and how to improve it.
What is the employee retention rate?
Your employee retention rate represents the number of employees who choose to stay at your organization over a period of time. It gives insight into the employee experience with your company. Companies have to choose a specific time period to calculate the retention rate, but most organizations prefer to measure it on an annual basis.
Remember, your employee retention rate is much more than a simple calculation. It helps you understand whether your employees are happy working with you or not. By calculating retention rates, you will understand what is lacking and how you can provide a better experience to your employees. Companies must calculate the retention rate on a yearly or quarterly basis to determine areas that have room for improvement.
Why is employee retention rate important?
Your employees are your most valuable asset as they drive initiatives to increase your business productivity. Without talent, no company can achieve success. Therefore, adopting retention strategies is crucial for companies to keep potential employees in the organization. If employers design the right retention strategies, they can experience-
- Cost reduction
- Skilled and experienced employees
- Improved workplace culture
- High productivity levels
- Employee morale improvement
- Better customer experience
Calculating the retention rate is also important as it gives you an insight into the methods you can use to retain qualified candidates.
How to calculate the employee retention rate?
Follow the below-mentioned steps to calculate the retention rate of your employees.
1. Outline the time frame
While calculating the retention rate, the first step is to identify the time frame you would like to use to measure retention. This can be yearly or quarterly. While most companies measure retention rates on an annual basis, they need to do it on a regular basis to stay on the top.
2. Have the headcount of employees
Count the number of employees working in your organization on the first day of the decided time period, and the number of employees who stayed in your company throughout the said time period. Remember, you can’t include any new employees who joined after the start of the decided time frame.
To determine the retention rate, you need to divide the number of employees who stayed in your company by the number of employees at the start of the said time period. Now, multiply the number by 100 to get your retention rate.
Retention rate formula with example
The overall formula for calculating the retention rate is:
(Remaining employees during the set time period ÷ Number of employees at the start of the specified time period) x 100
Let’s understand this formula with some examples.
Suppose you are calculating the retention rate on a monthly basis. A company has 30 employees on the first day of the month. However, on the last day, 28 employees are still working there. The employee retention rate, in this case, would be-
(28/30) x 100 = 93.33%
A company has 65 employees at the beginning of the year. Of those 65 original employees, 49 employees still worked there on the last day of the year. The employee retention rate is–
(49/65) x 100 = 75.3%
Tips to improve your employee retention rate
Calculating the employee retention rate can be beneficial for you, but you need to go past this calculation to improve this rate. Make strategies immediately if you think your workplace needs improvement. Implement those strategies to improve the retention rate of your employees. Here are some of the ways to retain skilled employees.
• Hire the right people
Retaining your employees starts with who you hire in your company. Make sure you are recruiting the right people for the job and your organization. Be clear on the role before starting the interview process, and choose the best candidate. You can use digital interview software to ensure qualified candidates.
• Create a positive work culture
It is managers’ responsibility to foster a positive and meaningful work environment to retain top employees. If the work culture is negative, employees are most likely to look for other opportunities. Take regular feedback from employees and make improvements accordingly. You can even occasionally conduct fun activities to promote team bonding in the workplace.
• Offer perks and benefits
Candidates always look for companies that offer benefits and perks to them. Employee satisfaction is one of the most significant factors, and these perks make them happy and satisfied. You can offer your employees medical insurance, bonus, rewards, etc.
• Encourage work-life balance
Motivating your employees to deliver the best is a good thing, but establishing a good work-life balance is equally important. Work-life balance has been a talk of the town lately, and managers should focus on it. Offer flexibility to your employees, and encourage them to take vacations. It will be a great boost for their morale.
• Develop your employees
If you want your valued employees to stay, you need to show them they can thrive in your organization. It is essential to offer them development opportunities. Help them grow, and add a tremendous value to your business.
Wrapping it up
Hiring candidates takes a lot of time and effort. And when they leave, it impacts the overall environment of the organization. Retaining talent is critical for your company’s success. The more employees stay in your organization for longer, the more you achieve. Calculate retention rate regularly, and make employee retention strategies. Boost your employee retention to enhance business productivity.