Calculating your employee retention rate is the first step in building a successful retention plan to keep your star performers engaged and on board.
How much money are you losing due to attrition? Turnover is expensive for any employer regardless of the job market, but in a tight labor market, the cost of losing your best employees is even higher if you’re experiencing a low employee retention rate.
You have to invest in hiring and training a replacement. Not only that, but you lose the value that those former employees were producing for your company, along with the tacit knowledge they possessed, which is hard to rebuild.
Every organization that employs people will have at least some turnover. How can you know if yours is high or low? Should you have a goal for employee retention rates? What should you do to keep more of your good workers?
Excellent questions. Let’s take a look.
What Is a good employee retention rate?
Generally, the average overall turnover rate for all industries is less than 20%. Rates do vary by industry, however.
How can you know if your company has a “good” or “bad” turnover rate for your industry? At a basic level, you need to know two things. First, what is your company’s turnover rate? Secondly, what is the average turnover rate for your industry?
To calculate your company’s turnover rate for a given period, gather these numbers:
- The number of employees you had at the start of the period (A).
- The number of terminations you had during that period (B).
Then calculate your turnover rate using this formula:
B ÷ A × 100 = Turnover Rate
For example, let’s say you own a restaurant. At the start of the 3rd quarter of 2022, you employed 40 people. During that quarter, you had 4 terminations. Using our formula, your turnover rate for the 3rd quarter of 2022 was 10%.
If you want to calculate turnover rates over a longer period, and the number of positions in your company varied over that time period, just use the average number of positions in your company over that period.
For example, let’s say your same restaurant had 36 employees at the beginning of the year, but you decided to hire more servers, cooks, and dishwashers throughout the year as the business grew. By May, you had 40 employees, and by November, 42.
To find your restaurant’s average number of employees, you need the following information:
- There were 4 months with 36 employees. 36 × 4 = 144.
- There were 6 months with 40 employees. 40 × 6 = 240.
- There were 2 months with 42 employees. 42 × 2 = 88.
- There are 12 months in the year.
Then average the number of employees like this:
144 + 240 + 88 = 472
472 ÷ 12 = 39.33
So, your restaurant’s average number of employees for the year was 39.33. Now suppose you had 15 terminations over the year. Your average employee turnover rate would be 15 ÷ 39.33 × 100, or 38%.
According to the Bureau of Labor Statistics, the average turnover in the accommodations and food services industry is 9.5%. So it appears that our example restaurant has a pretty low turnover rate compared to similar businesses. You can also check the BLS chart for your industry’s annual turnover rate.
Is your employee retention rate “healthy”?
In our example above, we know the restaurant’s annual turnover rate is 38 percent. That means your employee retention rate is 62 percent. You might be wondering — is that healthy?
That’s a bit subjective. If the bottom 38 percent of the staff is underperforming, and that’s where the separations are coming from, then you could call it healthy.
On the other hand, what if your business is losing its top performers within the total number of employees separating? Then it wouldn’t matter much if the rate were lower or higher than the industry average. This type of high turnover is costing you the loss of outstanding employees, and that costs you money.
How to improve your employee retention rate and reduce turnover
If you are losing too many of your star employees, you need a new retention plan to improve your company culture, along with the employee experience. Here are five steps you can take to keep people on board longer.
1. Hire the right people
During job interviews, look for qualities like commitment, diligence, and perseverance. Train your hiring managers to ask candidates why they want to work for you, and only hire people who sound like they’re excited about your company and the work you do. It never hurts to infuse people analytics into your hiring process.
You should also be sure new hires understand what they’re signing up for. If the job requires late nights, travel, and weekend work, be sure to let them know upfront. People quit jobs that turn out to be different from their expectations. Speaking of which, a good exit interview can help you flush out the problems and learn exactly why good employees leave. Here is an infographic from our friends at Blink to help you:
2. Pay competitive wages
To better retain employees, do a little research and make sure you are paying at least as much as your competitors, if not better. Look for good HR Software that offers compensation management and research tools.
3. Provide the best company culture
A good workplace culture is important for retaining employees and achieving higher employee engagement. You want your employees to view your company as a comfortable, positive place to work. They should enjoy being around their coworkers, enjoy their work environment, and feel supported with all the training and resources they need to do their job properly.
4. Offer praise and recognition for a job well done
Everyone wants to know when their work is appreciated, and your employees are no different. If you can afford it, you can offer financial incentives. However, giving public praise or even a simple “thank you” will work pretty well in boosting employee satisfaction.
5. Help them advance their careers
One of the primary reasons that people leave their jobs is to advance their careers. If you want to prevent this from happening at your company, there’s a simple solution to that. Give them opportunities to advance.
This is especially important with your top performers. Ask them where they would like to see themselves in a year, two years, and so on. Then help them lay out a plan to get there within your company. When people feel like their boss is invested in their futures, they tend to want to stay where they are. This is probably one of the best employee retention strategies you can implement.
High employee retention rates are a win-win for employer and employee
Every employer will have at least some turnover, but your goal should be to have the highest employee retention rate possible. Follow the above guidelines to give your employee retention rates a boost.
Want to learn more about how to calculate your employee retention rates or learn more about strategies that will make employees stay? We invite you to visit Workest where you can glean valuable insight into employee turnover and other important topics managers and HR specialists need to know more about.