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Retention Rate

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Business Studies

Have you ever wondered why companies like to keep their employees for long periods of time? What is the benefit of having long-term employees rather than changing staff every month? Let's take a look at what employee retention is and how this can affect a company.

Employee retention measures the rate of staff that stays with the company during a period of time. This is the inverse of employee turnover.

Employee retention rate importance

If the business wants to build a successful and sustainable company, they will have to keep their top employees content and committed to their roles. By providing perks, benefits, a positive environment and a work-life balance, the company will contribute to an employee's decision to stay in the organization. Investing in retention shows that the business cares for the employees, which will lead to a more engaged workforce, more innovation, and higher profit for the organization.

If the company can keep its retention rate high, it allows the organisation to focus on its goals and critical path, instead of having to constantly find new staff and train them. This will save the company time and money.

It is essential for a company to know how to measure employee retention rate as this will help it succeed in its goals.

Retention rate calculation is more accurate when it is done on a regular basis and not annually. Regular calculations, like monthly calculations, can reveal patterns and provide early warnings of potential negative trends, which annual reviews might not be able to do.

Retention rate formula

Calculating the retention rate of an organization can be done by dividing the number of staff that stayed with the business through the whole time period (for example, one month) by the number of staff at the beginning of the period, then multiplying by 100.

An example of a retention rate formula would be, Company A which wants to measure the retention rate for the past month. There are 40 employees on the first day of the month and on the last day of the month, there were only 36 employees remaining, as 4 members left the business. In this instance, the employee retention rate would be:

Problems associated with too low retention rates

Retention rates in general indicate how content the workforce is in a firm. If the retention rate is low, it could likely mean that there are problems somewhere in the business and the staff are dissatisfied. Below are some examples of problems associated with low retention rates.

  • High recruitment and selection costs to hire new employees who leave the business. The expenditures include management costs, advertising the position, conducting interviews, etc.

  • High induction and training costs to make sure that new staff can quickly adapt and familiarize themselves with the practice of the company. This can take some time to develop, especially if the job is highly skilled.

  • A need to redesign jobs. Jobs have to be as simple as possible in some industries where the retention rate is low, so it is easier to replace a new employee who has left the company.

  • Reduced productivity, as new staff will have to be retrained due to skilled staff leaving the company.

  • Low morale, as existing staff could feel unsettled due to work colleagues constantly leaving the organization.

Causes of high labour turnover and low retention rate

The problem of low retention rate is synonymous with high labour turnover which is the rate at which employees leave an organization. Here are some common causes of high labour turnover:

  • Lack of recognition: People want to feel they're doing a good job and contribute positively to the company they work at. The lack of recognition can demotivate employees and cause them to look for jobs elsewhere.

  • Lack of opportunity to learn and grow: Nobody likes to stand still while their peers are moving ahead. If employees can't see the opportunity to advance their career in your organization, they're most likely to leave and seek new ventures.

  • Poor management: Leaders play an important role in keeping people's morale. Poor management such as favouritism, inconsistent policies and lack of recognition for the employee's effort can put employees off and increase labour turnover.

  • Company culture: A culture lacking in innovation, flexibility, and respect drives away talents. People will leave when realizing their physical, mental health and work-life balance are being disrupted.

  • Lack of purpose and meaning: While great salaries and perks excite people, in the beginning, only meaningful tasks can motivate them to stay for a long time.

How to improve employee retention rate?

There are several tactics that can be implemented into the retention strategy to keep the best performing employees around. Below are some examples:

  • Employee engagement and involvement: motivating and getting the employee to be fully engaged will improve their productivity and decrease absenteeism. This will improve the employee retention rate.

  • Talent development: companies should not just hire candidates with high potential but develop, manage, and retain them as a part of a planned strategy for talent. Employing the right people and helping maintain their growth will improve the employee retention rate.

  • Investing in leaders: investing in training managers and supervisors will help develop the impact they have on their team. If employees trust their managers and respect them they will likely help cultivate their professional growth. This will possibly make them stay with the organization for longer.

  • Rewarding employees well: if an organization compensates and rewards its employees fairly, it will make employees more likely to remain with the business, as employees feel more appreciated and valued.

  • Building a value-based culture: focusing on building values-based culture will help the employee relate to the business's values and mission. People like to feel they are a part of something bigger.

  • Money is not always the answer to retention problems: even though giving a pay rise to the employee is important, it is not always the answer. Employee retention rate will be higher if the management team talks to their staff and asks for feedback on how they are doing and what is working and what is not for them. The staff needs to know that the company is willing to make them feel appreciated and that they are satisfied with their role.

Retention rate - key takeaways

  • Employee retention measures the rate of staff that stays with the company during a period of time. This is the inverse of employee turnover.
  • It is crucial for a company to succeed in keeping its employee retention rate high.
  • Calculating the retention rate of an organization can be done by dividing the number of staff that stayed with the business through the whole time period (for example, one month) by the number of staff at the beginning of the period, then multiplying by 100.
  • Retention rates in general indicate how content the workforce is in a firm.
  • Problems with low retention rates include high recruitment costs, low morale, and lower productivity.
  • The retention rate can be improved by rewarding employees, building a value-based culture and investing in training leaders.

Retention Rate

Employee retention measures the rate of staff that stays with the company during a period of time. This is the inverse of employee turnover.

Calculating the retention rate of an organization can be done by dividing the number of staff that stayed with the business through the whole time period (for example, one month) by the number of staff at the beginning of the period, then multiplying by 100. 


Employee retention measures the rate of staff that stays with the company during a period of time. If the retention rate is low, it will reflect a problem somewhere within the organisation. HR will help identify and solve the problem.

The retention rate can be improved by rewarding employees, building a value-based culture and investing in training leaders.

Employee retention rate can vary depending on the industry, however, the higher the retention rate the better.

Final Retention Rate Quiz

Question

What is the employee retention rate? 

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Answer

The rate of staff that stays with the company during a period of time. 

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What is the opposite of employee retention? 

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Answer

employee turnover: the rate of employees who leave the company

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Why is employee retention important? 

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Answer

More engaged workforce

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Question

What are the problems with too low a retention rate? (You can choose more than one answer)

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Answer

High recruitment and selection costs

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Question

What is a cause of low retention rate? 

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Answer

Lack of recognition 

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Question

How does poor management decrease the retention rate? 

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Answer

Leaders play an important role in keeping people's morale. Poor management such as favouritism, inconsistent policies and lack of recognition for the employee's effort can put employees off and decrease the retention rate. 

Show question

Question

How to improve employee retention rate? 

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Answer

Build a value-based company culture 

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Question

Why money is not always an answer to retention problems? 

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Answer

Money is not always the answer because in many cases staff only wants to know if the company appreciates what they do or whether their job contributes positively to the society. 

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Question

What is the benefit of employee engagement and involvement? (Choose the wrong answer)

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Answer

Increase productivity

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Why is it important to reward employees for their hard work/achievements?

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Answer

The reason for rewarding employees is to make them feel appreciated, which can boost their morale and performance. 

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Question

What do talent development tasks include? 

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Answer

Develop, manage and retain employees

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Question

What kinds of costs are associated with low retention rates?

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Answer

  • recruitment and selection costs
  • induction and training costs

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Question

How can a high retention rate help to save the company time and money? 

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Answer

If the company can get and keep its retention rate high, it allows the organization to focus on its goals and critical path, instead of having to constantly find new staff and train them. This will save the company time and money.

Show question

Question

What does the retention rate indicate in general? 

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Answer

The retention rate can indicate how content the workforce is in a firm. 

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Question

___ measures the rate of staff that stays with the company during a period of time. This is the inverse of employee turnover.

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Answer

Employee retention

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Question

If the company keeps its retention rate high, it allows the organisation to focus on its goals and critical path.


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Answer

True

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Question

Retention rate calculation is more accurate when it is done annually.


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Answer

False

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Question

Company C wants to measure the retention rate for the past month. There are 100 employees on the first day of the month and on the last day of the month, there were only 50 employees remaining, as 50 members left the business. What is the retention rate?

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Answer

50%

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Question

By providing perks, benefits, a positive environment and a work-life balance, the company will contribute to an employee's decision to ___ the organization.


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Answer

stay in 

Show question

Question

People want to feel they're doing a good job and contribute positively to the company they work at. The lack of recognition can...


Show answer

Answer

demotivate employees and cause them to look for jobs elsewhere. 

Show question

Question

 Poor ___ such as favouritism, inconsistent policies and lack of recognition for the employee's effort can put employees off and increase labour turnover.   


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Answer

management 

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Question

Motivating and getting the employee to be fully engaged will improve their productivity and decrease absenteeism. This will improve the employee...

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Answer

retention rate. 

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Question

Company D wants to measure the retention rate for the past month. There are 400 employees on the first day of the month and on the last day of the month, there were only 300 employees remaining, as 100 members left the business. What is the retention rate?

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Answer

75%

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Question

Jobs have to be as simple as possible in some industries where the retention rate is __, so it is easier to replace a new employee who has left the company. 


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Answer

low

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