How to Calculate and Improve Your Employee Retention Rate

Conversely, the turnover rate refers to the percentage of employees who left during that period.

While a high retention rate is a good thing, a high turnover rate is often a bad sign for a business.

In fact, experts have found that a high turnover rate can cost 1.5 to 3 times an employee’s salary. The more important and specialized an employee is at an organization, the higher the cost of their leaving.

The repercussions go beyond dollars and cents. A poor retention rate will also affect your team’s productivity and expertise.

How to Calculate Your Company’s Retention Rate

Before you calculate your retention rate, you first need to determine the period of time you want to look at. Most companies calculate their retention rate over a one-year period.

Here’s the formula:

Total no. of employees at the end of the period ÷ (no. of employees at the beginning of the period + new hires) × 100

Say, for example, a company had 20 employees on January 1, 2020, and hired 5 new employees in the course of the year. As of December 31, 2020, the team had 22 employees.

The turnover rate is calculated as follows: 22 ÷ (20 + 5) × 100. In this case, the company has an 88% retention rate.

Understanding Your Employee Retention Rate Better

Worried about the employee retention rate you just calculated? Want to try to improve it, but don’t know where to start? Begin by asking yourself why your employees are leaving you.

There are many factors that can influence your employee retention rate. Some of the most common are:

• Problematic management style;
• Inadequate recruitment, hiring, and onboarding processes for new employees;
• Lack of training, skill development or opportunities for advancement;
• Working conditions that don’t meet the needs of employees;
• Lack of motivation and recognition; and
• Lack of communication and transparency.

To understand your company’s strengths and weaknesses, regularly survey your team on an anonymous basis. This will enable you to continuously improve your organization.

And before you compare yourself to others, remember that not all lines of business face the same retention challenges. A restaurant or seasonal business is unlikely to have the same acceptable turnover rate as a seniors’ residence—and this is completely normal.

5 Tips to Improve Your Employee Retention Rate

1. Hold Exit Interviews

If you really want to understand why an employee is leaving you, what could be more effective than asking them directly?

They may not be able to tell you on the spot why they’ve been looking at other potential employers. However, by asking the right questions and leading the discussion appropriately, you can better understand their motivations.

A direct supervisor is not the best person for this kind of interview, given their close relationship to the employee. Instead, assign a member of the HR team or a task manager.

Here are some of the topics to address during the exit interview:

• Reasons for leaving;
• Information about the new job;
• Training and skill development;
• The positive aspects of their time at your organization (management, recognition, work tools, etc.);
• Possible solutions (what the organization could have done differently).

💡 The exit interview is also a good note on which to end your working relationship. As a result, the employee is less likely to become a bad ambassador.

2. Improve Your Hiring Process

Another culprit for low retention rates is hiring the wrong people. This is why it’s important that you have a rigorous recruitment process.

Not only should you assess candidates’ skills and know-how, you should also pay special attention to their personality traits. The professional relationship is much more likely to last when a candidate gets along well with the rest of the team and shares the company’s values.

Your employees are also more likely to stay with you a long time when they had a smooth onboarding process. In fact, some experts even say that 20% of turnover occurs within the first 45 days of starting a job.

So, make sure you choose your future colleagues wisely and place importance on onboarding them and integrating them into your team.

3. Pay Attention to Your Company’s Work Environment

Choosing your employees wisely is a great start, but you also need to be able to hold on to them. Even if you hire the best candidate and they get along perfectly with your team, if you don’t give them a stimulating work environment, all your efforts will be in vain.

In a healthy work environment, employees don’t suffer from excessive stress and pressure.

On the contrary, they feel recognized for their work and motivated by the company’s vision and goals.

But concretely, how can you make it enjoyable to work at your company?

• Maintain relationships of trust with your employees;
• Value their work by taking their opinions into account and saying “thank you” more often;
• Organize team-building activities;
• Provide quality tools and equipment.

4. Invest In Your Employees’ Working Conditions

Competitive working conditions help attract and retain employees in the long term.

Compensation is not limited to employees’ salary. It also includes insurance, RRSP contributions, yearly paid holidays, etc. These benefits are not exclusive to big companies but can be offered by smaller businesses as well.

Also invest in your employees’ professional development and create opportunities to advance their careers.

The more you focus on developing your team members’ talent, the more motivated they will be, and the more important they will become to your business.

5. Offer Flexible Schedules

Work-life balance should be a priority for all companies; the benefits are as significant for employers as they are for employees.

Structure and time management are among the top employee concerns. A simple and effective way to help them find a better balance in their lives is to offer them flexible schedules.

Importantly, a flexible work schedule doesn’t necessarily mean that your employees can work whenever they want. Instead, it means that they will no longer have to feel uncomfortable taking time off for an important event or being absent because their child is sick.

Here are some examples of things you can establish at your business:

• Have a flexible remote work policy;
• Allow your employees to swap shifts;
• Publish work schedules in advance;
• Offer additional days off;
• Ask your employees to tell you their preference (e.g., minimum and maximum number of work hours);
• Have rotating shift schedules so that the same employees don’t always end up working nights and weekends.

Some tools can be used by managers to offer greater flexibility. For example, employee scheduling software enables managers to better juggle with their employees’ many constraints. What’s more, employees can swap shifts, request time off or change their availability with just a few clicks.

The Key to a Good Retention Rate

In my humble opinion, the companies with the highest retention rates all have one thing in common: they offer an exceptional working environment.

Make sure your employees enjoy their work and can thrive in all areas of their lives. After all, we spend most of our time at work—we might as well enjoy it.