How to Measure Employee Retention: Tracking Key Metrics for Success

In recent years, workplaces worldwide witnessed a significant shift as millions of employees embarked on a mass exodus. With many companies slowly rebuilding after the aftermath of COVID-19, there's a growing belief that the "Great Resignation" era is over.

However, the reality tells a different story: 61% of employers still struggle to retain employees, even in the post-pandemic era.

Navigating the complex world of employee retention requires more than a gut feeling about why employees choose to stay or leave. It demands a deep dive into specific, measurable metrics that can provide insights into the effectiveness of your retention strategies. 

In this article, we'll discuss:

• The key employee retention metrics you should be tracking
• How to measure retention.
• And how to use these insights to improve your talent management strategy.

🧲 What is a retention metric?

An employee retention metric is a quantifiable measure used to track how well an organization retains its employees over a specific period. 

These metrics are crucial for: 

• Understanding employee turnover trends. 
• Evaluating the effectiveness of retention strategies. 
• Identifying improvement areas in employee satisfaction and engagement.

These key metrics can include retention and employee turnover rates or employee satisfaction. 

According to a report from the Work Institute, a company spends an average of about $18,000 when an employee leaves. This could mean employers could be dealing with employee turnover costs of roughly 900 billion dollars. 

Analyzing employee retention metrics will help your company improve employee retention strategies and minimize turnover costs. 

What is a good retention rate?

A good rule of thumb is maintaining a retention rate of 80% or higher.

However, a good employee retention rate may vary depending on several factors, including the company's industry, size, and culture. Retention alone doesn't provide a complete picture of your company's performance. So, make sure to look at other metrics too.

Is staff retention a KPI? 

The short answer is yes, staff retention is a KPI! One way to see HR effectiveness is by evaluating your staff retention.

A higher retention rate typically suggests higher employee engagement. In contrast, a high employee turnover can point to various organizational issues. Combining this data with other metrics enriches the insights from your people analytics.

➡️ Measure HR success with more HR metrics, enabling data-driven HR decision-making. 

📏 How to measure employee retention: 5 Methods

As HR managers, your workforce is a breeding ground of data, so use it to your advantage.

Here are five methods to gather the data you'll need to evaluate employee retention.

Exit and stay interviews

Stay and exit Interviews are both effective methods that you can use to help improve the workplace environment. Maximizing this data can foster a harmonious workplace environment, increasing employee satisfaction, engagement, and long-term success.

Stay interviews are proactive conversations you can set up with employees to help you better understand their needs.

These conversations allow you to create an effective employee retention strategy to encourage them to stay in the company long-term. Ensure you are strategic with your stay interview questions to capture the insights you need, such as their career goals within the company and the benefits that attract them. 

Exit interviews, on the other hand, can provide equally important insights as they shed light on why people quit their jobs, revealing patterns and underlying reasons such as management issues, compensation, or benefits.

Understanding how these factors impact motivation to stay can guide improvements in your current system.

Surveys measuring employee satisfaction

Conducting surveys is a great way to gauge how your employees feel about your company and what motivates them to stay. When you see a spike or drop in your employee satisfaction rate, it may affect your retention rate.

In fact, according to Gallup, engaged business units achieve a remarkable 43% difference in employee turnover in low-turnover environments.

"Improving job satisfaction isn't just about creating a positive work environment but also building a satisfied and committed team for improved employee retention." Lilia Tovbin, CEO & Founder of BigMailer.io.

Benchmarking data and industry standards

Another good way to measure the current state of your retention rate is to look at industry numbers, including retention and employee turnover rates and employee engagement. This lets you assess whether your current numbers are a cause of concern or can be used to set HR goals for your organization. 

HR tech-embedded analytics

You can also maximize HR software or analytics to get the needed numbers for evaluation. 

For example, on Zavvy, you can create custom dashboards to help you access the average tenure per company, department, or team. With such specific data, you can refine strategies and enhance retention efforts with precision.

Employee referrals and reviews

Employee referrals and reviews are another way to gather unbiased data and insights.

Check out sites like Glassdoor and Fairygodboss, where current and former employees share their thoughts.

You can also chat with employees hired through referrals to learn what convinced them to apply.

🧩 Key metrics for measuring employee retention & how to calculate them 

You can analyze employee retention in various ways, and there are metrics for each aspect.

Here are some standard employee retention metrics you can use depending on your specific goals and how to calculate them. 

New hire turnover rate

The new hire turnover rate is the percentage of new hires leaving their jobs, typically before their first year. While some factors are beyond your control, tracking the numbers and seeing what common reasons are being raised among new hires deciding to resign early is essential.

Here's how to calculate the first-year turnover rate: 

Average employee tenure

Average tenure measures how long an employee stays in the company. The average tenure is the sum of each employee's tenure divided by the number of employees.

To calculate the average employee tenure, you need to get employees' total tenure in days: 

Employee/new hire satisfaction scores

This metric evaluates the level of satisfaction among employees and new hires. You can gather scores through the employee job satisfaction survey, where you can add questions that let employees rate their overall experience in the company. You can also use the employee net promoter score (eNPS) to gauge employee satisfaction.

Here's how to calculate your employee satisfaction score: 

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The higher the score, the greater the overall employee satisfaction.

Scores near the top of your scale indicate high satisfaction, while scores closer to the bottom suggest areas for improvement.

Absence rate

Absence rate is the percentage of the total number of unplanned employee absences. This includes sickness, emergencies, and other unexpected reasons. Suppose an employee or a team is missing work more than usual or productivity levels are low. In that case, you can calculate the absence rate to see if absenteeism is causing these factors.

Here's how to find your total absence rate: 

Overall employee retention rate

This metric evaluates the percentage of employees who stay at their jobs. This is the opposite of employee attrition rates, which measure the percentage of employees who leave their jobs. 

Retention rates are divided into these categories: 

• The managerial retention rate determines how much managers stay in the company. 
• A department-based retention rate identifies how long each team in a specific department stays in the company.
• Retention rate per performance level helps assess and distinguish high-performing vs. average-performing employees.

Specifying your desired retention rate helps you understand the nitty-gritty of your employees' concerns and see where you can craft personalized strategies. 

Here's the employee retention rate formula:

Components:

• Number of employees at the start of the period: The total number of employees at the beginning of the time frame you're analyzing.
• Number of employees at end of period: The total number of employees at the end of the same time frame.
• Number of employees hired during the period: The total number of new hires made during the time frame.

Employee flight risk

Flight-risk employees are those who might leave your company soon. They could be feeling unmotivated and considering other opportunities.

A great way to assess whether an employee is about to resign is through predictive analytics, which uses current or historical data, statistical algorithms, and machine learning techniques.

You can also use satisfaction surveys and eNPS to spot employees who qualify to be on the flight risk. 

Promotion rate

This HR metric measures the percentage of employees who received a promotion over a set period within the company. Measuring how frequent promotions occur in your company lets you identify what areas in your employee development programs should be improved. This way, you can develop strategies that can help with increasing employee engagement and retention.

Here's how to compute the promotion rate:

Compensation metrics

Compensation metrics help you measure, analyze, and decide how good your compensation policies and practices are. Compensation formulas can structure your pay process and help employees understand how they are getting paid. 

Here are some compensation metrics you can measure:

The average salary helps you understand the overall compensation level within the organization.

Salary range penetration measures where an employee's salary falls within the company's established pay range for their role.

The pay-equity ratio (gender or ethnicity) assesses pay fairness across different demographic groups.

The compensation competitiveness ratio compares the company's pay for a specific role to the market average.

Compensation growth rate measures the rate at which employee compensation has increased over a specific period.

Manager performance score

This is where employees get to rate their manager's performance. It helps teams figure out what works and what doesn't. Plus, it's a way to determine what makes a good manager and identify not-so-great ones who might drive employees away. Calculating it is pretty much like calculating employee performance scores.

For example, let's say there are two sections where you need to rate your manager from 1-5: Your manager's summary rating (X section rating + Y section rating) / Overall sections (2) 

💡6 Tips for interpreting retention metrics

It's time to decode the numbers! Deciphering these metrics can illuminate trends, highlight areas of strength, and pinpoint opportunities for enhancement within your team.

If you're unsure how to interpret the data you have, here are some tips to guide you.

Look at industry trends

Recognize patterns from the data you collected. Have you noticed common retention or employee turnover rates? Your retention metrics give you insights to interpret whether your current numbers are at par with industry standards.  

Segment your data

To identify specific issues, break down your retention data by department, role, or demographics. Doing this lets you see how each area affects your overall results. Are some departments losing more people than others? Do female employees stay longer than male employees? Analyze each segment to get more relevant insights on employee turnover and retention. 

Find out how they relate to other key metrics

Compare metrics to see how they relate to your current retention rates. Did you see a spike in employee engagement? It may be a positive indicator for making employees stay. Have you noticed a difference in your employee productivity levels? Your employee retention metrics can create more valuable insights when you find a connection from other vital metrics within your company. 

Consider contextual factors

Factors such as the current economic climate or major company transitions can also shape employees' perceptions of job security and internal growth opportunities. Internal factors like salary freezes, company layoffs, or management changes can harm the employee's length of stay.

There may also be cases when external factors like family and social obligations, economic crises, or health conditions may affect your retention rate. 

Analyze why employees leave their jobs

Is the company's salary, benefits, or workplace culture driving your employees away? Use the insights gathered from exit surveys to find out. When you know what's causing them to leave, you can devise strategies to address them.

Use data to draw actionable insights 

Use the data to develop HR strategies to boost employee retention. 

Let's say the X score reveals low trust in leadership in a specific department or dissatisfaction with career opportunities. This data can help you draw actionable insights to address underlying issues effectively.  

🏆 How to use retention metrics to improve HR strategies

A data-driven HR team knows that crunching the numbers is just the start. Now, it's time to put your ideas into action!

Here are seven ways to maximize retention data and enhance employee engagement, satisfaction, and loyalty. 

Prioritize issues that matter most

Start by focusing on 1-3 key issues at a time. When you overwhelm your organization with too many initiatives, you'll lose track of your objectives and impact your effectiveness. Use data to understand crucial issues you need to attend to. 

Set specific goals

Ensure that goal-setting is clear, specific, and measurable for each initiative. Here are a few examples to help you understand: 

• Increase engagement scores by 10% in 6 months.
• Increase satisfaction rates by 5% in 3 months.
• Decrease employee turnover rates by 5% annually.

 ➡️ Create a structured set of goals for a clear HR direction. Here are goal-setting frameworks you can consider and a goal tracker template you can try regardless of your chosen framework.

Decide on a time frame to reassess your strategies

Typically, a period of 3-6 months is effective for implementing changes and seeing measurable differences. You can adjust time frames based on the scope of initiatives. 

Set up leadership and management training

Provide comprehensive training to managers on engagement and retention strategies, focusing on effective communication and giving and receiving feedback. When managers have the knowledge and resources to champion their teams, it will be easy to boost employee morale and strengthen retention efforts.

➡️ Learn the right way of giving and receiving feedback with this training guide and boost your leaders' confidence through compensation training for managers.

Communicate actions and progress

Transparency is critical, so keep your employees in the loop about the actions taken and progress made.

Explore platforms like Zavvy, where you can personalize your company's learning journeys, making tracking progress and integrating your HR management tools easy. 

Enable cross-departmental collaboration

To make your employees part of the process, encourage cross-departmental collaboration where various departments like HR, management, and operations sit through the planning stages. 

Devise tailored strategies across departments

Evaluate each department's retention rates. You may see a stark difference among teams, so delving into team data is crucial to understanding their unique challenges. 

➡️ Use company data to your advantage! Here are some best practices for employee retention, and be inspired to shape your retention strategy. 

➡️ Discover the power of AI. Take a look at ways to leverage AI in employee retention strategies.

Monitor and adjust continuously

Regularly track the impact of your strategies and make adjustments as needed. This enables you to assess whether your company is moving in the right direction with its retention strategies.

➡️ Master employee retention: Measure, understand, and improve with Zavvy

Employee retention is a powerful strategy that fuels productivity and overall company success. So, to ensure your retention strategies are effective, it's vital to analyze the metrics closely.

However, tracking and analyzing data can be overwhelming. An AI-powered platform like Zavvy can help streamline this process. Using our software, you can efficiently track and analyze employee retention metrics to help avoid costly employee turnover and foster a loyal, engaged workforce.

With Zavvy, you can: 

Measure employee retention metrics with:

• 🤫 An anonymous feedback tool that lets you gather unbiased data from customizable company-wide surveys.
•  🔢 eNPS software to track the satisfaction of employees and how it progresses or declines over time.
• 🎯 Set relevant goals and retention KPIs with our goal management software that lets you manage and track goals in one transparent central place. 

Improve retention through performance and skill growth opportunities with:

•  📚A learning experience platform offering access to thousands of helpful resources to achieve employee development goals.
•  📈 Talent and performance development software so you can build competency-based career paths for every role and level to help your employees reach their full potential. 

📅 Reach the peak of your employee retention with Zavvy! Schedule a demo to learn more about its features.

❓ FAQs

What is the KPI for employee retention rate? 

The key performance indicators (KPI) for employee retention rate may include:

• Revenue per employee (Revenue / Number of employees) - Helps you ensure you are not costing more than what you currently have.
• Profit per employee (Total profit / Number of employees)- Helps you calculate raw profitability minus the expenses. 
• Utilization rate (Total billable hours logged / Total hours logged) × 100- Gives the ratio of total work hours to the internal cost of each employee. 
• Employee capacity (Capacity = Total hours per week)- Measures performance productivity, which can help you identify high-performing employees and those at risk of burnout.

How do you benchmark employee retention? 

To benchmark employee retention, take a look at industry averages and compare how your current numbers are performing. You can also take a YoY (year-on-year) comparison to identify how your retention rates have increased or decreased over the years.