Your employees are the foundation of your company’s success —- you already know that, and you’ve probably worked hard to create a company culture where they feel valued, a work environment where they feel they belong, and a mission they feel they’re contributing to. But how well are your initiatives translating into keeping employees around for the long haul?
To know how your efforts at retaining employees are working, you need to do a deep dive into the most critical metrics. These numbers will tell you a more complete story about the employee experience at your company, and how it’s affecting employee turnover. Let’s dig into the top ten employee retention metrics and key performance indicators to see what they have to say about employee turnover and retention.
Why Measuring Employee Retention Matters
Having high levels of employee retention makes everything in your business run better — higher productivity, more employee engagement, and less time and money spent on recruiting and hiring. Plus, strong rates of employee retention indicate you’re providing a rewarding and thoughtful employee experience.
But employee retention can be tricky to understand, especially if you’re not as good at retaining employees as you’d like to be. Tracking employee retention with a variety of metrics, like the ones we’re about to cover, can help you get a comprehensive picture of what’s going on in your organization, and that will give you a path to improving employee retention.
The 10 Most Important Employee Retention Metrics and KPIs
1. Overall Employee Retention Rate
Measuring your overall employee retention rate is the most basic retention metric — if you’re not measuring anything right now, start here. You measure your overall turnover rate by choosing a period of time, perhaps a year, and dividing the total number of employees at the end of the year by the number of employees at the beginning of the year, then multiplying by 100.
This metric will give you your total talent turnover rate. Let’s say you have 100 employees at the start of the year, and 90 employees at the end. You divide 90 by 100, which is .9, and multiply it by 100 to get a 90% retention rate.
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2. Voluntary Turnover Rate
Your voluntary turnover rate gets more specific — how many employees chose to leave your company? Voluntary turnover includes those who left to work at another company, retirements, and people who left the workforce completely. A low voluntary turnover rate means your employees are probably pretty happy with your work environment, their work-life balance, and the role they’re in.
To calculate your voluntary turnover rate, divide the number of employees who left voluntarily in a given period by the total number of employees at the company in that period. For example, if you had 10 voluntary departures in a year out of 200 total employees, you divide 10 by 200 and then multiply by 100, giving you a voluntary turnover rate of 5%.
3. Involuntary Turnover Rate
Involuntary turnover, on the other hand, measures how many people your company chooses to lay off or terminate. It’s calculated just like voluntary turnover rate: divide the number of employees you laid off or fired by the total number of employees in a given period, and multiply by 100.
A high involuntary turnover rate indicates a few potential issues.
- Hiring process: you’re not bringing in the right people, whether it’s a skills or a cultural fit mismatch.
- Performance management: you’re not giving your people what they need to be successful in their roles.
- Workforce planning: you’re over-relying on layoffs to meet business targets, or you over-hired to begin with.
If your involuntary turnover rate is high, it’s definitely time to look into the specific causes and figure out a solution as soon as possible.
4. Retention Rate by Category
It can be helpful to know which areas of your business or demographics are driving most of your turnover, to identify what’s potentially causing a high employee turnover rate. You can calculate the turnover rate by department or manager to see if any patterns appear there — perhaps you have a department with a toxic work environment or a negative manager driving employees away.
You can also drill down into retention rates by demographics like age, gender, and ethnicity/race. If you find your retention rate for women is much lower than for men, or it’s much lower for employees of color than for white employees, that can indicate a serious issue in your workplace culture that’s driving employees away and hurting your DEIB goals.
5. New Employee Turnover Rate
New employee turnover gives you important information on how well you’re hiring and onboarding new employees. If your brand-new hires are regularly leaving after just a few weeks on the job, you’re either not hiring the right people in the first place or your onboarding process is poor or non-existent. Perhaps your hiring process is screening for the wrong skills, or your job descriptions don’t match the actual responsibilities of the role.
Do keep in mind that new employee turnover tends to be high — often up to 20% in the first 45 days, according to SHRM — but it’s worth getting this down as low as possible. After all, hiring an employee is expensive and time-consuming, and if they immediately leave you’re seeing no ROI.
6. Retention Rate by Performance Level
Knowing how effective you are at retaining your top talent is also critical. If your retention rate overall is pretty good, but you have a high turnover rate specifically among your most talented employees, your organization will suffer.
And it indicates a problem with career development options, or overworking your best people until they suffer from burnout. (An all-too-common example is rewarding high performers for their hard work by… assigning them even more work, which quickly diminishes their desire to work harder.)
To calculate your retention rate by performance level, you can treat your top performers as two people, as that’s the impact they often have, and factor that into your retention rate calculations.
7. Average Employee Tenure
Calculating your average employee tenure can tell you how well you’re doing at providing a satisfying employee experience with plenty of development opportunities.
You calculate this metric by adding up the total number of years worked by all your employees and dividing it by the total number of employees you have. For example, if you have 100 employees and they have worked a total of 300 years, your average length of employment is 3 years per employee.
8. Employee Satisfaction
Another, more direct measure of how employees feel about working at your company is your rate of satisfied employees — people who are satisfied are less likely to leave. Calculating your employee Net Promoter Score (eNPS) is the best way to measure this: here’s how to do it.
- Via an employee survey, ask your people one question: On a scale of 0-10, how likely are you to recommend [company name] as a place to work?
- Group respondents into three buckets: a 9 or 10 is a Promoter, a 7 or 8 is a Passive, and a 6 or below is a Detractor.
- Subtract your percentage of Promoters from your percentage of Detractors to find your eNPS.
Anything over 0 is considered acceptable, but if you want to significantly increase your retention rates, you’ll need to dig deeper into your employees’ drivers of satisfaction and work to get that number of Promoters up and the number of Detractors down.
9. Cost of Turnover
How much is every employee who leaves, voluntarily or involuntarily, costing you? You can calculate this KPI by determining the average cost of hiring and onboarding a new employee at your company, including recruiting costs and training, plus the costs of covering vacancies while their role is waiting to be filled.
10. Employee Engagement
Measuring employee engagement can be tricky, but a lack of engagement means you’re likely to lose good employees. You can send employee surveys to measure employee engagement by asking questions like:
- Do you feel valued in your role?
- Do you see a career path to your future goals within the company?
- Do you feel your job allows you to use your skills and gain new ones?
These questions will give you an idea of how well your company culture promotes employee engagement.
Best Practices for Employee Retention
If you’ve calculated a few, or all, of these metrics and found your employee retention rate could use some improvement, don’t despair! There are plenty of proven employee retention strategies that can help.
The top two reasons employees leave, according to McKinsey research, are feeling their work isn’t valued by their organization and lacking a sense of belonging to the organization. You should also focus on treating employees at all levels with respect, which means giving them as much flexibility and autonomy as possible — no one wants to be micromanaged.
Also, pay careful attention to your hiring process if you struggle to retain employees. Bringing in the right people is important to both those new employees and your current ones as well. And remember that while compensation is important, the employee experience is also critical to retaining employees.
Want to go in-depth on these retention strategies and many more? Tune into The Great Retention podcast!