What Are the Most Important Employee Retention Metrics?

You’ve found the right talents for your team and business and they’re currently working for you. However, recruitment doesn’t end there. You need to engage and retain them. To do so, you need to implement retention efforts and measure employee retention metrics.

Unfortunately, many business owners, HR personnel, and even hiring managers think that finding the right talent ends with these talents accepting a job offer from the company. 

In a competitive work environment, and in competitive niches, retaining talents is harder than acquiring talents. 

Read on to discover the benefits of retaining top talents and the important employee retention metrics companies need to measure.

Why employee retention matters

Companies that retain their top employees and managers see benefits across various areas of their business. 

From higher morale to increased customer retention and satisfaction to lower hiring and training costs, among others.

Here are some of the top benefits of employee retention: 

Higher employee morale 

Employee retention boosts morale, fosters creativity, and encourages problem-solving, leading to a more engaged and productive workforce. This applies to individual employees, team leaders, and managers.

Lower hiring costs

When a team member leaves, you need to go through the entire recruitment cycle all over again. This is costly for you, your team, and the entire company. 

You incur costs at every step from recruitment and selection all the way to orientation and onboarding. Not to mention the negative impacts such as an increase in overtime pay, employee burnout, having to adjust compensation packages, among others. 

Retaining employees reduces these costs and ensures business sustainability and productivity.

Reduced training costs 

Besides hiring costs, companies that suffer from a high employee turnover rate struggle with training costs. 

Whether it’s the company’s software and tools or regular in-house training and development sessions or programs, hiring new employees means spending time and money on training. 

On the other hand, retained employees already have the skills and training needed.

Higher customer retention 

When employees work with the same customers, they build rapport. This contributes to improving company-customer relationships and increases customer retention for the business.

Improved productivity

Employee training boosts retention, which in turn, increases individual and team productivity. 

Productive teams are able to achieve better business results, brainstorm new offerings and more. Training also contributes to improving employer branding and enhancing soft skills, or employability skills. 

Employees become brand advocates

Besides employer branding, retention can improve recruitment marketing strategies and build brand advocacy when team members talk positively about your brand and business. 

What is the importance of employee retention metrics?

Measuring metrics and KPIs helps you identify trends in internal employment and recruitment and gain valuable insights about your organization. 

You can use these insights to make data-driven decisions at the right time or when the occasion arises.

Measuring employee retention metrics and KPIs helps you see which of your retention efforts are effective and which aren’t.

You can also use these metrics to measure the progress of employee retention and engagement initiatives, identify areas of improvement, and allocate resources effectively.

6 important employee retention metrics to measure 

Now, let’s review the top employee retention metrics every company and HR team needs to measure for an effective employee retention strategy.

1. Employee retention rate 

The obvious metric companies need to measure is the employee retention rate. This metric is an indicator of a company’s ability to keep or retain employees over a period of time. 

According to the Academy to Innovate HR, a good employee retention rate is 90%. 

To calculate your company’s employee retention rate, you’ll need to subtract the total number of employees from the total number of members who left the company. Then divide this number by the total number of employees and multiply the result by 100. The result will be a percentage.

For example, if your company has 200 employees, and you lost 30 employees during the course of a year, your employee retention rate will look like this:

Employee retention rate = ((200-30) /200) x 100 = 85%

1. Retention rate per category 

The above metric looks at the employee retention rate for the entire company without considering sub-categories such as managers, team leaders, genders, …etc.

To ensure your company isn’t attracting a single type of employee or prompting some employees to leave, you should consider the retention rate per category metric. 

Category retention rate also shows you the top managers who are better at retaining their team members and who aren’t. 

For example, one category is retention rate per manager. This looks at employee retention within each team. 

Do some managers have a higher turnover rate compared to others? If the answer is yes, you need to investigate why. 

The equation is the same as the above, but with changes in the details. Instead of looking at the total number of employees in the company, you’ll need to use the number of employees reporting to a specific manager.

Let’s say you want to measure the employee retention rate of your company’s marketing team. The equation will look like this:

Retention rate per manager = ((Total number of employees per manager [marketing] – number of employees who have left [this] manager) / total number of employees per manager) x 100

The top employee retention categories are:

• Retention rate per manager
• Retention rate per age group
• Retention rate per department (if one department has several managers)
• Retention rate per gender
• Retention rate per performance level (top performers vs low performers)

Depending on your company and hiring needs, you may measure other categories. 

1. Voluntary employee turnover rate 

There are two types of employee turnover, voluntary and involuntary turnover. You need to measure both in your organization.

Voluntary turnover refers to the percentage of people who leave the company because they choose to. Hence, the term ‘voluntary.’ 

These are team members who decided to leave because they found a new, more suitable opportunity, higher pay, better benefits, or for relocation purposes. 

Employees who leave because of toxic managers fall under voluntary turnover. 

It’s important to understand why employees are leaving your organization. Understanding the reasons will help inform your compensation and benefits strategy and packages, as well as your employee retention efforts.

Here’s how you can calculate your company’s voluntary turnover rate. 

Divide the number of employees who left your company voluntarily during a specific period by the total number of employees in your company during that time period. Then multiply the result by 100 to get a percentage.

Let’s look at this in numbers. If your company has 1,000 employees and 100 employees leave during a year, then the equation will look like this:

100/1000 x 100 = 10% 

Generally, your voluntary turnover rate should not exceed 10%. A healthy turnover rate is usually under 10%.

Some of the top factors that affect employee turnover are hiring mistakes by employers, toxic managers, and lack of adequate compensation and benefits schemes.

1. Involuntary employee turnover rate 

The involuntary turnover rate refers to employees who unwillingly left your company. These employees were laid off or dismissed during a period of time. 

Layoffs are bad for future hiring and employer branding. They are also an indication of poor workforce planning. 

To calculate involuntary turnover rate, you’ll need to use the same formula as the voluntary turnover rate but use the data for involuntary turnover.

The equation involves dividing the number of employees who left your company involuntarily during a specific period by the total number of employees in your company during that time period. Then multiply the result by 100 to get a percentage.

1. Average employee tenure 

It’s important to understand how long an employee stays with your company. Often, the longer they stay, the better. 

Average employee tenure is an employee retention metric. It indicates employee satisfaction and a stable and often positive work environment. 

If you’re managing employee engagement and retention efforts, the longer tenures can indicate positive efforts and results.

To calculate the average tenure of an employee, you’ll need to divide the total employment time for all employees by the total number of employees. 

The equation looks like this

Average employee tenure = Total employment time for all employees / Total number of employees

You can measure this metric across teams to identify teams with a high turnover or those with higher employee retention.
 

1. Cost of employee turnover

An important employee retention metric is the cost of employee turnover. It measures how much the company incurs due to employees leaving the company. 

However, this metric is a bit more complex than the other metrics mentioned in this article. 

It involves collecting several data points and allocating a financial value, in your local currency, to them.

Start by collecting the following data:

1. Determine the period you’re measuring the cost of turnover in. We recommend a year.
2. The number of employees at the start of the period.
3. The number of employees at the end of that same period.
4. The number of employees who left during that period.

Once all this data is collected, you can calculate the average number of employees in your organization.

The equation for figuring out the average number of employees looks like this.

Average no. of employees = number of employees at the start of the year + number of employees at year end = X / 2 

Finally, you can calculate the average rate of employee turnover.

Final words

As you can see there are many employee retention metrics to measure in your company. Some of these metrics fall under the broader HR metrics and KPIs, while some may overlap with employee engagement metrics. 

In any case, it’s important to determine the metrics you’ll measure and why you’re measuring them. 

For example, if you notice the average tenure of employees decreasing in the past two years, consider the impact of changing company policies on employees. 

Or perhaps, tenures are dwindling in a specific team or department. 

It could be the new manager hired is not good at people management or overworks team members prompting them to quit. 

Using different types of performance evaluations can also help you retain employees. But be sure to use them correctly so you don’t end up driving away skilled talents over ineffective evaluations.

Similarly, using employee rewards and recognition programs can be a great way to boost employee retention and loyalty.

If you need help identifying areas of improvement, way to retain employees, or create an employee rewards program, get in touch with Tawzef. Our HR consultancy team is ready to help!