Employee share scheme

Guide To Calculate Staff Retention Rate

Renee Jameson
Renee Jameson

5m read

Many business owners overlook the importance of calculating staff retention rates, and by doing so, they risk losing their most valuable asset - their staff. A lack of focus on staff retention can mean you fail to identify potential problems and lose the ability to intervene before it’s too late.

In this guide, we will explain why employee retention is so important, how to calculate staff retention rates and offer tips to improve your organisation's retention rate.

The importance of employee retention

Employee retention is a challenging but vital task for any business. Losing good employees can be costly and often leads to reduced work productivity, as it takes time to train new staff members. It can also be quite an arduous process both from a time and resource perspective to recruit qualified staff who fit well with the company culture and dynamics.

With today’s looming economic conditions that many industries are facing, not to mention the rise of automation and the decreasing availability of workers, companies are struggling to attract the best candidates for their vacancies. With that in mind, it’s more important than ever to hold onto your employees, keeping them motivated and engaged. The first step in this process is understanding your staff retention rate.

What is an employee retention rate?

Employee retention rate is a key metric for measuring the success of an employee's experience with your company. It is the percentage of employees who remain on staff from the beginning of a particular time period to its end. This does not include new hires during that same time frame. Organisations calculate their staff retention rate annually or quarterly, depending on the data they are trying to collect.

Why is your retention rate calculation important?

Knowing your staff retention rate is important as it reveals your company’s success in recruiting and retaining the right employees. It also indicates the level of employee engagement and job satisfaction, which can significantly impact productivity levels. In addition, retaining staff for longer periods leads to cost savings for the company due to less recruitment, training and onboarding costs.

By tracking your employee retention rate, you’ll know precisely how successful your company is in retaining the right employees. With this data, you can make informed decisions and tweak your programs to ensure that your staff members are engaged and motivated to stay with the company long-term.

Calculating staff retention rate (with an example)

Many business owners and leaders are at a loss when asked how to work out staff retention rates, but the reality is that it’s a very straightforward process. Once you’ve gathered some crucial data about your business, the steps involved in an employee retention rate formula are easy.

  • Determine the time period for measurement
    The first step when looking at how to calculate staff retention rates is to determine the time period you want to measure. This could be on a yearly, quarterly or biannual basis.

  • Take a headcount of employees
    Now that you have determined your time period, it's time to count up the total number of staff members who were employed during that period. This is important for accurately calculating your retention rate. You can do this either manually or by using employee share scheme software, like Orchestra.

  • Subtract
    Once you have calculated the number of employees throughout the period, you will need to subtract the number of original employees who are still working at the end of that same period from the total amount. This difference value is what will be used to determine the retention rate percentage.

    For example:
    The staff headcount at a call centre on April 1st 2021, is 48.
    The number of original employees remaining on March 31st is 43.

    48 – 43 = 5

    Five employees left during the tracked time period.

  • Divide
    To calculate your final retention rate, you now divide the number of remaining staff by the total amount at the start of a specified period. This figure, represented as a decimal, provides insight into how successful you are in retaining employees.

    43 (remaining employees) ÷ 48 (employees at the start of the period) = .89
  • Evaluate
    Once you have your figure, change it to a percentage by moving the decimal two places to the left. The rate of 89% indicates a healthy number of employees at our call centre remain with the organisation; however, if the percentage is lower than 50%, you should take a serious look at adjusting your methods for staff retention.

    In order to determine what is a good employee retention rate, you should also consider the attrition rate of similar companies in your industry. This can provide a valuable benchmark, as the rate of employee retention varies greatly between industries.

Tips to improve staff retention rate

Employee retention is an essential indicator of the overall health of any business, and if calculations show that your staff retention rate needs to be improved, the next step is implementing change.

Retention strategies should be tailored to your organisation's individual needs; however, some common approaches can be taken.

Improve the work culture

Work culture plays a significant role in the happiness of your team. Managers and employers can strive to maintain a good employee retention rate by understanding the reasons behind turnover, evaluating the company culture and ensuring the organisation creates a positive work environment.

Hire the right staff

When it comes to hiring the right employees, the right recruitment practices can help improve staff retention rates. Ensure a thorough employee screening process is in place, which might include reference checks, background checks and skill assessments to ensure that the right people are being brought into the company.

Provide attractive perks and benefits

Everyone loves an employee benefit, and these extrinsic motivators can be a great way to attract and retain staff. From competitive salaries and generous paid leave, through to gym memberships - find out what appeals most to your staff.

Offer a promising career path for growth

Creating clear career pathways is essential for retaining your most ambitious team members. Knowing that there are opportunities to move up within a company often motivates employees to stay, so it’s important to communicate the options available and work with employees to create a career path.

Provide training and education

By encouraging your employees to attend workshops, conferences and other educational opportunities in the field, they will not only stay up to date with the latest industry trends and developments but also see value in remaining in your business.

Offer employee ownership schemes

One of the most effective ways to incentivise your staff is to offer an employee share ownership plan (ESOP). An ESOP allows employees to share in the success of their employer by providing them with a stake in the company’s future.

Learn more about increasing employee engagement with ESOPs, or get back to basics in our guide to understanding profit sharing with employees.

In summary

Whether your employee retention rate is a healthy high figure or needs improvement, all business owners can benefit from a happy workforce. Armed with the figures to track your progress, explore our tips for improving retention, and motivating your employees.

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