Employee retention refers to the employer’s ability to retain employees and prevent turnover. The company saves time, effort, and money by developing existing staff compared to repeatedly hiring and onboarding new employees year in and year out.
In addition, calculating employee retention empowers companies to see how their turnover rate compares to other companies in the same industry and how it changes over time. If you have a high rate or it increases yearly, you can identify potential reasons to avoid further escalation.
Why you should measure employee retention
When you measure your employee retention, you get a deeper understanding of why your staff stays with your organization. You’ll be able to determine high-risk employees and spot trends and patterns of what to expect in the future. The information gained helps businesses plan and implement strategies to avoid losing high performers.
Employee retention metrics are just as important as other key financial metrics. So by tracking these KPIs you’ll be able to minimize turnover, which is crucial to your organization’s success.
9 employee retention metrics to track
Employee retention can be analyzed in various ways, and there are metrics specific to each aspect. Here are some standard employee retention metrics you can use, depending on the specific goals you want to achieve.
Employee retention rate (including retention rate per manager, department, age group, etc.)
Employee retention rate is the most basic metric for monitoring how well you retain your employees. It indicates the employer’s ability to keep its staff over a period of time.
In general, a good retention rate is above 90%. To optimize your workforce, strike a balance between retaining your top talent and inviting highly-qualified candidates to join your organization.
For example, if 25 people left your company and you have 300 employees, your employee retention rate is 91.67%.
The retention rate per manager is the percentage of people retained under one manager. If this rate is low, it could indicate challenges with leadership skills or the relationship between the manager and direct reports.
This rate is calculated by subtracting the total number of employees who left per manager from the total number of employees per manager and then dividing it by the total number of employees per manager multiplied by 100.
For instance, if you manage 15 people and 3 resign from your team, your retention rate per manager is 80%.
The same formula applies to the retention rate per department: the total number of people per department minus the total number of people that stayed in the same department divided by the total number of employees per department multiplied by 100.
Overall turnover rate
The overall turnover rate refers to the percentage of people who left the organization over a given period.
For example, if an organization has an average of 200 employees and 10 employees went away this year, the overall turnover rate is 5% (10/200 x 100 = 5%).
Suppose your company’s overall turnover rate is greater than the industry average. In that case, company leaders should take a deep look at possible reasons like the absence of career advancement opportunities, inability to provide high or competitive salaries, or poor working conditions.
Voluntary turnover rate
Voluntary turnover happens when people leave the company of their own volition. There are plenty of reasons why people resign:
- Finding a job in another organization
- Returning to school
- Starting a family (for pregnant female employees who’ve decided to become a full-time mom/housewife)
For instance, if you have 4 voluntarily departing employees for a company with 60 employees during the same period, your involuntary turnover rate is 6.67% (4/60 x 100).
The ideal voluntary employee turnover rate should be 10% or less. Going higher than this rate could mean challenges related to how your organization hires and promotes its staff, so it's crucial to track this metric.
Conducting employee surveys can help you gauge which aspects of your business are causing dissatisfaction so you can help reduce your voluntary turnover rate.
It should be noted that if employees of a specific gender, sexual orientation, race, or ethnic group quit in droves, it could signal that your company is struggling with DEI. It could lead to negative employer branding or lawsuits.
Involuntary turnover rate
On the flip side, involuntary turnover occurs when employers decide to let go of people because of performance issues, a mismatch with company culture, organizational restructuring or legal challenges.
For instance, if 3 people were terminated by a firm that has 75 employees, your involuntary turnover rate is 4% (3/75 x 100).
According to Zippia, companies lose 18% of their workforce to turnover each year, 6% of which is involuntary. Having a rate greater than 6% could mean recruitment issues.
Maybe you’re hiring people who are a poor job fit, either they are underqualified or overqualified for the position. It could also indicate failure in workforce planning.
Analyzing why you face massive layoffs shortly after hiring individuals can help boost your hiring process. For your protection, you should also keep records of involuntary turnover if there would be potential litigation in the future.
Absence rate reflects the percentage of unplanned work absences due to sickness or personal emergencies.
There’s an estimated number of 251 working days per calendar year. So an employee that incurred 8 absences in one year has a 3.18% absence rate.
Absenteeism is a negative job behavior, and high levels of absenteeism could signify problems with employee motivation and engagement.
Employee satisfaction rate
Employee satisfaction is one of the most important employee retention metrics because satisfied and happy employees are more likely to stay than their unhappy peers.
They are more productive, creative and even promote their organization within their professional network. On an organizational level, employee satisfaction impacts business performance and profitability.
Some factors that contribute to employee satisfaction include:
- Fair compensation and benefits
- Recognition and appreciation from managers and coworkers
- Work-life balance
- Learning and development opportunities
Conducting employee survey helps gauge employee satisfaction; specifically Employee Net Promoter Score (eNPS). eNPS measures how well employees like or dislike their experience working for your organization.
Employees are asked the question, “On a scale of 1-10, how likely are you to recommend this company to your friends or colleagues as a place to work?"
Those who score 9 and 10 are called ‘promoters’, meaning the person is satisfied with their employer. Those who score 7 and 8 are ‘passive’ while those who score between 0 to 6 are ‘detractors’ because they are unsatisfied with their employers. For employee satisfaction, only ‘promoters’ and ‘detractors’ are accounted for the eNPS.
eNPS is computed by subtracting the percentage of promoters (9 and 10s) from the percentage of detractors (0 to 6s). Here is what the scores mean:
- Scores from 0 to 30 are good.
- Results between 30 and 70 are great.
- Scoring above 70 means excellence.
For example, you received 50 employee survey responses. 35 people are promoters, 5 are detractors, and 10 are passive.
You have 70% of promoters (35/50 x 100), while you have 10% of detractors (5/50 x 100). Subtract Promoters from Detractors, and you’ll get a +60 score, which means a great employee satisfaction score.
Knowing the eNPS score can help the management monitor employee satisfaction level. If it is low, then they should implement strategies to make their employees happy to avoid losing them to other companies.
Employee engagement score is another good employee retention metric that assesses an employee’s needs and motivations. It reveals strengths and areas for improvement about how engaged the person is with the job and organization so employers can find a way to provide those employees’ desires to retain their staff.
You can asssess your employee engagement with surveys. Respondents answer with ‘strongly agree, agree, neutral, disagree and strongly disagree.
Engagement scores are computed using Likert scales. Strongly agree answers are scored with 5 points, agree with 4 points, neutral with 3 points, disagree with 2 points, and strongly disagree with 1 point.
To compute the score, add up all the ‘strongly disagree’ and ‘agree’ scores by the number of responses received.
For example, if you have 75 employees and 35 responded with ‘strongly agree’ and ‘agree’ to a question about fairness in compensation, your positive response score would be 35.
Cost of employee turnover
In the book Love 'Em Or Lose 'Em: Getting Good People to Stay, authors Beverly Kaye and Sharon Jordan Evans said that you would never really know what it costs to lose a talented employee if you never calculate the cost.
They noted there are direct and indirect costs associated with losing employees. Direct costs are direct and easy to measure, like recruitment expenses (search firm, referral bonuses, job ads, larger salary, sign-on bonus).
Indirect costs are hidden, harder to measure, and costs are the highest. Examples are:
- lost productivity
- work put on hold until a replacement is on board
- overload on the team (including overtime to get work done during selection and training of replacement)
- lost customers
- lost contracts and business
- lowered morale
- decreased productivity
- loss in business continuity
- losing other employees (other employees following suit)
So, for example, if you spend $3,000 recruiting an individual and you have 5 people resigning, your cost of employee turnover is $15,000 (3,000 x 5).
Average employment length
Average employee length tells about how long an employee stays with an organization. Knowing this metric can help employers determine how satisfied their employees are and how effective the company’s HR processes are.
If a company has 50 employees who have worked for a combined of total 200 years, the company’s average length of employment is 4 years (200/50 = 4).
The higher the average employee tenure, the happier your workforce is. Hence the greater the retention rates.
According to BLS, manufacturing workers has the highest employee tenure at 5.2 years, while those working in the leisure and hospitality experience have the lowest tenure at 2 years.
One factor for the difference in tenure is the varying age distributions, with workers in manufacturing tending to be older compared to those in leisure and hospitality.
Knowing your organization’s employee retention metrics can help you fully understand the root causes of why employees leave your company from multiple perspectives.
Moreover, it also helps you evaluate how effective your employee retention strategies are so you’ll know what works and what needs to be improved.