Employee Retention Rate: Definition, Formula, and How to Calculate It

Let’s define retention rate clearly. Your employee retention rate is the percentage of employees who remain with your organization over a specific period. It’s the inverse of turnover. If you lose 10% of your people, you’ve retained 90%. Simple math, but the implications run deep. 

The retention rate def goes beyond just a number on a dashboard: 

• Financial health indicator: Replacing an employee cost organizations significantly 

• Culture barometer: High employee retention rate signals a healthy workplace 

• Operational stability: Consistent teams deliver better results 

• Competitive advantage: Organizations investing in development see higher retention 

The employee retention rate matters because human resource retention directly impacts every business metric you care about, from customer satisfaction to profitability.

The True Cost of Low Employee Retention Rate 

Let’s talk money. According to the Society for Human Resource Management (SHRM), the average cost per hire is $4,683. But that’s just recruitment. The total cost of replacing an employee ranges from 50% to 200% of their annual salary. For someone earning $60,000, you’re looking at $30,000 to $120,000 in replacement costs. 

The hidden costs hurt worse: lost institutional knowledge, decreased team morale, customer relationships at risk, projects delayed, and remaining employees stretched thin. The financial impact of poor employee retention rate extends far beyond initial hiring costs.

The retention rate formula is straightforward, but applying it correctly requires understanding the details. Here’s the standard calculation: 

Employee Retention Rate = (Number of employees at end of period ÷ Number of employees at start of period) × 100 

Key components: 

• Starting headcount: Count all employees on day one 

• Ending headcount: Count employees remaining on the last day 

• Time period: Monthly, quarterly, or annual measurements 

• New hires: Exclude people hired during the period 

Why exclude new hires? The retention rate formula measures your ability to keep existing employees. If you start with 100, lose 10, and hire 15, your ending count is 105. But your employee retention rate is 90%, not 105%.

Critical Considerations Before You Calculate Retention Rate

Before you start crunching numbers, get clear on these distinctions: 

Voluntary vs. involuntary separations: Track these separately. Voluntary turnover tells you about satisfaction. Involuntary separations reflect performance management. 

Department-specific tracking: Your engineering team’s employee retention rate might be stellar while sales is hemorrhaging talent. 

Industry benchmarks matter: Generally, employee retention rates of 90% or higher are considered good. But retail and hospitality naturally see higher turnover than professional services.

Here’s exactly how to calculate retention rate for your organization: 

Step 1: Define your measurement period (monthly, quarterly, or annual) 

Step 2: Record starting employee count on day one 

Step 3: Count employees remaining at period end (exclude new hires) 

Step 4: Apply the retention rate formula (divide ending by starting, multiply by 100) 

Step 5: Interpret your results (compare to previous periods and industry standards)

Practical Examples: How to Calculate Retention Rate for Different Scenarios

Example 1: Annual employee retention rate 

• Started 2024 with 100 employees 

• Ended with 90 employees (hired 5 during the year) 

• Calculation: (90 ÷ 100) × 100 = 90% retention 

Example 2: Department comparison 

• Sales: 20 started, 14 remained = 70% retention 

• IT: 15 started, 14 remained = 93% retention 

• Insight: Sales needs investigation 

Example 3: Growing company 

• Started with 50 employees 

• Hired 20 new people 

• Ended with 65 total (45 original employees remained) 

• Calculation: (45 ÷ 50) × 100 = 90% retention 

Common mistakes: including new hires, not separating voluntary from involuntary departures, and failing to account for retirements separately.

Advanced Metrics: Beyond Basic Employee Retention Rate 

Once you’ve mastered how to calculate retention rate, level up with these approaches: 

• Cohort retention analysis: Track groups hired together to see if your onboarding improved over time. 

• Role-specific tracking: Senior versus junior employee retention rates tell different stories about career development. 

• High-performer retention: Track your best people separately. Losing A-players is catastrophic. 

• Tenure-based analysis: Are people leaving at the two-year mark? That’s a red flag about growth opportunities.

Not all industries play by the same rules when it comes to human resource retention: 

High-performing industries: 

• Government: Highest retention rates 

• Finance and Insurance: Low quit rates 

• Professional Services: Strong retention 

High-turnover industries: 

• Retail and Wholesale: Higher turnover expected 

• Hospitality: Naturally elevated turnover 

• Healthcare: Significant retention challenges 

Your industry context matters more than national statistics when you define retention rate success.

Is Your Employee Retention Rate Competitive?

Here’s how to benchmark your retention rate formula results: 

• 90% or higher: Excellent performance. Keep doing what you’re doing. 

• 80-89%: Solid, but room for improvement. Investigate patterns. 

• 70-79%: Warning zone. Human resource retention strategies need attention. 

• Below 70%: Crisis mode. This indicates systemic problems requiring fundamental changes. 

Not all turnover is bad. Losing poor performers? That’s functional turnover. Losing top talent to competitors? That’s dysfunctional turnover that destroys your employee retention rate. 

Understanding why people leave is the first step in improving your employee retention rate: 

• Compensation issues: Money matters. Employees leave for better pay. 

• Career development: Lack of growth opportunities drives voluntary turnover. 

• Work-life balance: Flexible schedules matter more than fancy perks. 

• Poor management: Bad bosses kill employee retention rate faster than anything. 

• Lack of recognition: Unrecognized employees interview elsewhere. 

• Company culture: Toxic culture drives talent away consistently. 

Generational Differences in Employee Retention Rate 

Different generations bring different expectations: 

• Baby Boomers: Value stability, comprehensive benefits, and retirement planning. 

• Generation X: Seek work-life balance and job security while juggling multiple responsibilities. 

• Millennials: Prioritize career growth, company culture, and purpose-driven work. 

• Generation Z: Demand collaboration, cutting-edge technology, and meaningful work. 

Calculate retention rate across demographic groups to identify which populations need targeted retention strategies. 

Improving your employee retention rate requires systematic effort: 

• Competitive compensation: Conduct regular market analysis and stay competitive. 

• Career development: Create clear progression paths with strong development programs. 

• Recognition programs: Acknowledge contributions regularly to build loyalty. 

• Work-life flexibility: Schedule flexibility remains a top priority for employees. 

• Quality onboarding: Clear onboarding processes improve retention significantly.

Using Data to Optimize Your Retention Rate Formula Results

Transform your employee retention rate from a lagging indicator to a leading one: 

• Conduct stay interviews: Ask current employees what keeps them engaged and what might drive them away. 

• Track engagement metrics: Use pulse surveys to measure satisfaction before it’s too late. Employee empathy and connection matter significantly for retention. 

• Identify flight risks: Performance Management Software can spot patterns indicating someone might leave. 

• Analyze turnover patterns: Look for trends by department, manager, tenure, or role. 

• Monitor leading indicators: Decreased productivity or withdrawn behavior often precede resignations.

The Role of Technology in Tracking Employee Retention Rate 

Modern organizations need sophisticated tools to define retention rate trends: 

• Automated calculations: Let software handle the retention rate formula computations. 

• Real-time dashboards: See your employee retention rate across all dimensions instantly. 

• Predictive analytics: Identify which employees are at risk of leaving based on behavior patterns. 

• Integration capabilities: Connect retention data with performance reviews and engagement surveys. 

This is where Performance Management Software becomes essential for serious human resource retention efforts. 

You know how to calculate retention rate. You understand the retention rate formula. You can define retention rate benchmarks. But tracking your employee retention rate doesn’t automatically improve human resource retention outcomes. 

The Real Problem 

Most organizations react instead of prevent. Data lives in silos. Manual tracking wastes time. You’re always catching up instead of getting ahead. 

Team GPS, a Performance Management Software Changes Everything 

Team GPS Performance Management Software transforms employee retention rate management from reactive to proactive: 

• Predictive Analytics – Identify at-risk employees months before they leave 

• Automated Tracking – Calculate employee retention rate across all dimensions instantly 

• Continuous Feedback – Catch concerns before they become resignations  

• Career Visibility – Show employees their growth path  

• Manager Insights – Track retention by manager and provide coaching  

• Compensation Analysis – Spot pay disparities before people leave 

Organizations using Team GPS see significant employee retention rate improvements within 12 months, delivering immediate ROI while building stronger teams. 

Ready to Stop Losing Talent? 

Schedule Your Free Team GPS Demo today and discover how our performance management software helps you keep your best people engaged and committed. 

Q1: How do you calculate employee retention rate? 

To calculate retention rate, divide the number of employees remaining at the end of a period by the number at the start, then multiply by 100. The retention rate formula is: (Employees remaining ÷ Starting employees) × 100 = Retention Rate %. 

Q2: What is considered a good employee retention rate? 

A retention rate of 90% or higher is excellent, meaning turnover is 10% or less. However, what defines a good employee retention rate varies by industry, with hospitality averaging 20-30% and professional services achieving 85%+. 

Q3: What is the difference between retention rate and turnover rate? 

Retention rate measures the percentage of employees who stay, while turnover rate measures those who leave. They’re inverse metrics: Retention Rate = 100% – Turnover Rate. 

Q4: How often should I calculate my employee retention rate? 

Calculate quarterly for operational insights and annually for strategic planning. Monthly tracking helps identify trends faster, aligning calculations with your business cycles for the most actionable human resource retention data. 

Q5: Should new hires be included when calculating retention rate? 

No, new hires during the measurement period should be excluded from employee retention rate calculations. The retention rate formula focuses on employees present at the period’s start to accurately measure retention effectiveness.