What Is a Good Retention Rate and How Do You Achieve and Maintain It?

Employers know that attracting and retaining top talent is essential for continual innovation and growth. However, without measuring employee engagement rates, you won’t understand the effectiveness of your HR strategies in improving retention and decreasing turnover.

In this article, we’ll explain everything you need to know about employee retention rates and look at the tactics you can use to improve this metric and ensure organizational success.

What is employee retention rate?

Retention rate measures the number of people employed during a specific time period and helps businesses with workforce planning, recruitment, project planning, and understanding potential labor shortages.

Employee retention rate indicates how well a company is doing at retaining employees. It helps businesses understand whether employee retention strategies are impactful and if they need to improve issues with work environments or the employee experience that might be getting in the way of retention.

A high retention rate suggests that employees are satisfied, engaged, and committed to their roles and the organization, whereas a low retention rate could indicate that employees are disengaged and dissatisfied, which impacts business performance.

Employee retention rate is in contrast to turnover rate, which measures the number of people who leave a business in a specified period. However, the two metrics are inextricably linked because high turnover leads to low retention and vice versa.

A business of any size can benefit from measuring employee retention. 

However, the strategy is especially helpful for businesses with a high turnover rate because it provides insight into why this might be occurring, and leaders can then plan to allocate resources to solve the problem.

How to calculate employee retention rate

There are various calculations to measure employee retention rate, but one of the most common is to divide the total number of employees who remained employed with your business through a specific time period by the headcount you had on the first day of the timeframe. 

Then, multiply that number by 100 to see your employee retention rate expressed as a percentage.

As a formula, this looks like: (Number of employees at the end of a specific time period / the number of employees at the start of a specific time period) x 100 = retention rate.

For example, on the 1st of September, you had 75 employees, and on the 30th of September, you had 71 employees, as four members handed in their notice and left employment with the company. 

In this case, your retention rate would be 71 divided by 75 x 100 = 94.6%.

We recommend calculating employee retention rate every month. This way, you can stay on top of trends and react accordingly. 

What is a good employee retention rate?

Employee retention rate varies from industry to industry. For example, retail, hospitality, and travel industries typically see a lower retention rate as they have a higher employee turnover rate. 

A general rule of thumb is a good retention rate ranges from 90 percent or higher.

How does employee retention rate impact a business?

When employees frequently leave an organization and turnover is high, this impacts a business’s operational performance and success due to its significant financial impact.

According to the Society for Human Resource Management (SHRM), recruiting new employees costs a business $4,700 per hire, with some employers estimating the actual cost to be three to four times that amount. 

And when an employee leaves, it costs the company 33% of that person’s annual salary to find, hire, onboard, and train a suitable replacement. If you’re an enterprise-level business, this suddenly amounts to millions of dollars in avoidable costs.

Additionally, a low retention rate results in disengaged employees making up a larger percentage of the workforce, which can impact productivity and profitability.

Always having to hire can also mean gaps in labor, project delays, and general disruption in the workforce as teams find themselves short on members. This level of disruption can play havoc with employee morale, as people realize they’re picking up the slack of an empty hire.

Therefore, employers must pursue engagement strategies that retain high-achieving employees to ensure business continuity and financial stability.

How to improve employee retention rates

Follow these four steps to improve employee retention rates and ensure teams are feeling engaged and motivated in the workplace.

1. Ensure a robust onboarding process

Employee onboarding is the process of helping new hires adjust to the cultural and performance aspects of their new job quickly and smoothly while ensuring that they comply with any mandatory training. 

The goal of onboarding is to set employees up for success and ensure they go from outsiders to insiders in the organization.

When the onboarding process is disorganized, disruptive, and doesn’t flow smoothly, it causes anxiety and stress for the new employee rather than inspiring them to do their best work and make them feel part of the team.

Make sure your employee onboarding is as robust and seamless as possible. For example, regularly engage with new hires in weekly one on ones, work on 30/60/90 day plans, and set specific, achievable, and measurable goals to help employees build knowledge and confidence as they onboard with the company.

2. Create a positive, inclusive workplace culture

When you create a sense of belonging in the workplace, employees feel like they belong and are amongst peers who respect and appreciate them. This incentivizes people to do their best work and feel engaged with their job, performance, and organization. 

To advance employee retention, look at improving your diversity, equity, and inclusion efforts by using alternative hiring practices, ensuring diverse representation in leadership, creating open dialog around equity, and paying attention to compensation, ensuring employees are paid fairly.

3. Conduct employee surveys and ask for feedback

Employee engagement surveys measure engagement levels and provide insight into how employees feel about the business, their work, and other team members. 

By looking at this information, businesses can make decisions informed by data about employee happiness and use this to impact retention.

For example, suppose an employee survey indicates that dental is a highly-requested benefit that the company doesn’t provide. In that case, you can introduce this benefit and, in turn, increase your employee happiness and retention.

4. Run employee recognition and reward programs

Employee recognition is public or private acknowledgment, thanks, or praise for employee performance. For example, recognizing an employee’s results or goals they’ve achieved or highlighting positive employee behavior such as exceptional customer service.

Recognition is important because it helps employees feel engaged and productive and helps support employee retention. A recent study found that employees who reported that their managers recognized them were 40% more engaged than employees whose managers did not recognize their work. 

Additionally, the employees who received encouragement and praise from leadership were more confident, productive, and less likely to quit.

A high retention rate is instrumental to organizational success, and businesses need to encourage ongoing efforts to decrease regrettable turnover through strategic HR practices and ensure that employees feel engaged, motivated, and inspired to do their best work.