Are you looking for ways to reduce turnover rates and boost employee satisfaction within your organization? Employee retention metrics play a crucial role in retention management, helping businesses understand the factors influencing employee retention, and consequently, improving their retention strategies. By measuring specific metrics and KPIs, companies can identify areas of concern to take proactive actions. In this blog post, we will delve into the essential employee metrics and KPIs you should be measuring for your retention program, allowing you to make informed decisions and implement effective strategies.
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What Is Employee Retention?
Employee retention is the set of practices, policies, and strategies used to keep talented employees within an organization and reduce turnover. The main aim is to reduce the number of employees who leave the organization during a specific time period.
Widening Gap Between Workplace and Employee Needs
There has been a widening mismatch between the workplace environment and what employees want globally in recent times. These discrepancies have resulted in many employees resigning from their jobs, as they’ve undergone self-evaluation and demanded more flexibility, greater remote work opportunities, and increased compensation.
Employee retention has thus been thrust into the spotlight as the number one priority for most HR departments.
Measuring Employee Retention
To know how your efforts at retaining employees are working, you need to dive into the most critical metrics deeply. These numbers will tell you a more complete story about the employee experience at your company, and how it’s affecting employee turnover.
Tracking Progress Over Time
These metrics serve as critical indicators of the effectiveness of employee retention efforts, shedding light on areas that need improvement and those that are already performing well. Tracking these metrics over time is crucial to ensure that your employee retention strategies are producing the desired results.
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Why Does Employee Retention Matter?
Employee retention is crucial because a high turnover rate is costly to a business. When employees are engaged and happy, they are more likely to stay with the company, reducing these costs. Failing to develop a strong employee retention strategy is more than just an issue of job satisfaction. It can lead to a loss of productivity, a decrease in morale, and a negative impact on the company's culture.
When an employee leaves, the cost of recruiting a new hire is quite high — in fact, up to twice the employee’s annual salary. Employee retention is an essential part of running a business smoothly and keeping costs in check.
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Why You Need To Measure Employee Retention
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 employee retention rates indicate you’re providing a rewarding and thoughtful employee experience.
Gaining Insights for Improvement
But employee retention can be tricky to understand, especially if you’re not as good at retaining employees as you’d like. 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.
Analyzing employee retention provides valuable insights into who leaves and when and who stays. This information helps organizations assess if they are losing their top performers.
The Link Between Employee Satisfaction and Retention
Employee retention is an indicator of employee satisfaction. The more satisfied employees are, the less likely they are to leave the organization. Strategies to boost employee satisfaction, like increased compensation or more professional development opportunities, also help improve retention.
Early Identification and Intervention
Tracking employee retention allows organizations to identify issues early and take appropriate action. For example, if retention is lower than average in one department, they can investigate further to uncover and address the reasons.
Knowing what to focus on and assessing the strategy's effectiveness once implemented. Employee retention metrics help assess the success of the retention strategy.
The High Cost of Turnover
When an employee leaves a position, the employer loses time, money, and effort in recruiting and hiring. Once the replacement is hired, they must still be onboarded and trained. Employers pay over one trillion US dollars annually in turnover expenses, so focusing on retention is vital.
Employer Brand and Retention
Employee retention also acts as a yardstick for an organization's employer brand. If an organization is known for retaining its employees, it will be seen as an employer of choice. Conversely, if employees leave regularly, it can affect external recruitment efforts, especially with social media at the leaver’s fingertips.
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17 Key Employee Metrics And KPI s You Should Focus On
1. Overall retention rate
Retention rate is an essential employee retention metric to track. A low retention rate also indicates a high level of turnover, and understanding how long staff stays with your company overall gives you insight into whether you have a desirable work environment where people can thrive. When you look at your retention rate, you see the percentage of employees that remained with you over a given period. To calculate your overall retention rate, use this equation:
Employee retention rate = (Total number of employees - Number of employees who left) ÷ Total number of employees As mentioned earlier, HR professionals typically calculate the retention rate annually, but you can calculate it more frequently or as necessary.
Normal Variations in Retention Rates
As a general rule, the higher the retention rate, the better. But understand that there are circumstances — many of them out of your control — that can cause employee retention rates to fluctuate over time, which is completely normal.
For example, financial difficulties may mean letting a few employees go, which would certainly impact your retention rate. Or, perhaps one year, there’s more demand and stronger recruiting efforts for product managers, which could result in staff pursuing interesting opportunities elsewhere.
2. Employee Satisfaction
Satisfaction is an important employee retention metric because satisfied employees are more likely to stay in their jobs than those who are unhappy. Generally speaking, satisfied employees feel challenged and excited by their work and contributions, are compensated fairly, receive good benefits, such as health care insurance, and work well with their peers and managers. They are also better brand ambassadors, provide better customer service and are more productive.
An employee survey can help measure employee satisfaction. Some organizations use an employee net promoter score (NPS) to gauge satisfaction. Based off the NPS used for customers, employees are asked such questions as “With 1 being not at all likely and 10 being extremely likely, on a scale of 1 to 10, how likely are you to recommend this company to a friend or colleague as a good place to work?” Those who score 9 or 10 are “promoters,” 7 or 8 are “passive” and 0 to 6 are “detractors.” For this metric we only take into account promoters and detractors.
Net promoter score = Percentage of promoters – percentage of detractors
3. Involuntary Turnover Rate
Your involuntary turnover rate observes the rate at which an employee leaves the company involuntarily, whether through a termination or layoff. To calculate involuntary turnover, take the number of talent layoffs in a given time period, divide it by the company’s average headcount, and multiply the result by 100.
On average, companies trend around a 6% involuntary turnover rate. If your company hovers around the average involuntary turnover rate, it most likely means the company only lets go of low performers. In contrast, a high involuntary turnover rate suggests your hiring managers are hiring people who don’t align with the skill set or company culture, or that the business could not sustain their employment due to lack of revenue.
4. Voluntary Turnover Rate
The voluntary turnover rate measures the rate an employee leaves the company voluntarily. To measure your voluntary turnover, take the number of employees who quit in a given time period, divide it by the average headcount, and multiply the result by 100.
Mid-size SaaS companies experience around an 11% voluntary turnover rate. As your voluntary turnover reflects employee morale or dissatisfaction with company culture, HR and department leaders will want to ensure that they have the tools they need to keep employee engagement high for a low turnover rate.
5. Turnover Cost
Turnover cost refers to what it costs to replace an employee. You determine turnover cost by adding your direct and indirect turnover costs, which include advertisement fees, recruitment expenses, unemployment benefits for involuntary leaves, onboarding costs, and productivity losses for a specific department.
Collaborative Headcount Management
Your budgeting process may already anticipate headcount planning, but you must collaborate with HR and leadership throughout the year to ensure headcount stays on track or anticipate any involuntary turnover. You can then build a more agile forecast that accounts for turnover cost.
Minimizing Turnover Costs
Knowing your turnover cost allows department leaders to be more proactive in keeping it as low as possible. HR could establish a strict timeline for the hiring process and collaborate with respective department leaders to ensure availability to participate and make agile decisions on who to hire. While hiring quickly helps inhibit any productivity loss, onboarding and the ramp to full productivity will take time.
6. Average employee tenure
Understanding how long on average an employee stays with an organization is a good indicator of employee satisfaction. An average employee tenure looks at the average of all employee’s tenures with the total number of employees. The higher the average employee tenure, the more satisfied employees and thus the greater the retention rates. To calculate average employee tenure:
Average employee tenure = Total employment time for all employees / Total number of employees
Again, Human Resources professionals can use this metric across various departments or groups to identify areas of concern.
7. 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—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.
8. 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.
9. Average employee tenure
While retention rate tells you the percentage of staff that sticks around, average employee tenure reveals how long people tend to work for you before attrition.
You’d likely want to calculate employee tenure for your current employees. Still, you can also measure this key performance indicator (KPI) during a range of time or throughout the entire company life cycle. What makes the most sense for your business is up to your people ops team, but calculating current and all-time average tenure can help you compare your company is current to where it’s been. And at a minimum, track this metric annually. To calculate average employee tenure, use this formula:
Average employee tenure = Cumulative employment time for all employees ÷ Total number of employees
If your average employee tenure is shorter than expected, look at ways to reduce attrition. Some ideas include:
• Using incentive compensation to recognize and reward your people continuously • Having open conversations with staff about their career goals and aspirations • Establishing straightforward paths for internal growth • Implementing clear promotion policies and compensation plans
10. Retention Rate by Performance Level
Knowing how effective you are at retaining your top talent is also critical. If your overall retention rate 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.
11. 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.
12 . 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.
13. Absenteeism Rates
Absence rate monitors the percentage of unplanned employee absences related to sickness, emergencies, or other personal reasons. This figure doesn’t include planned vacations or time off. To calculate absence rate, use this formula: Absence rate = Number of absences during a period ÷ Total number of days in that period
It’s a good idea to track absence rate per employee, but you can also track it per team or department and compare your findings. If one department has a significantly higher absence rate than the rest, it’s worth exploring why that may be. But one individual's high absence rate isn’t a reason to be alarmed. Instead, have a conversation with them to check in, see how they’re doing, and discuss whether there’s anything the organization can do to better support them.
14. Referral Rate
Tracks the number of new hires referred by existing employees, indicating employee satisfaction and engagement.
Each of these metrics provides a unique perspective on employee retention and engagement, and organizations often combine them to create a holistic view of their workforce health. By regularly monitoring and analyzing these metrics, companies can identify areas for improvement and make informed decisions to enhance employee retention and satisfaction.
15. Top Talent Turnover Rate
Top talent turnover, or undesirable turnover rate, examines how many high performers leave the company. This granular turnover metric is important for HR to track as it may indicate a wave of dissatisfaction among high-performing team members in a specific department or across the company. HR can then dig deeper into specific cases with department and executive leaders to determine a strategy for employee retention and people-culture fit with any new hires.
To begin calculating this metric, HR and department leaders should indicate who, out of the resigned employees, were their top talent. You will then add the number of top performers who leave the company together, divide that number by average headcount, and multiply the result by 100.
16. Flight risk
Understanding employees who are likely to leave would be great, but predicting the future is not always possible. Some indicators of employees that are likely to leave include:
• Employees that are paid below the market • Employees who perceive their pay is low (even though it may not be) • Employees that have recently changed roles (or managers) • Employees that went through a significant life change • Employees that experience low to minimal career progression
HR analytics teams need to plug these indicators, along with other factors, into Flight Risk models to really understand which employees are that likely to leave and then implement timely interventions to retain the valuable talent.
17. Empty Positions
HR and department leaders understand the scope of work their teams engage with every day. To that end, departments can see where there are gaps within their departments and make a hiring request. Once the job ad goes up, HR keeps a tally of positions they need to hire for—which are known as empty positions.
Knowing how many empty positions exist across the company allows you to calculate the costs associated with the hiring process. These costs include the hours HR and department leaders spend reviewing application materials and interviewing candidates, as well as any costs associated with placing an ad on an employment platform.
How to Improve Employee Retention: Strategies That Work
1. Foster a Culture of Recognition and Appreciation
Employees who feel valued are more likely to remain with a company. Regular recognition—whether through shout-outs in team meetings, employee appreciation events, or personalized rewards—boosts morale and reinforces a sense of belonging.
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2. Provide Clear Career Growth Opportunities
One of the main reasons employees leave is due to a lack of career advancement. Organizations should establish structured career development programs, mentorship opportunities, and leadership training to support employees in their progression within the company. Promoting skill development through workshops and certifications helps ensure that employees envision a future with the organization.
3. Prioritize Work-Life Balance
Burnout is a major contributor to voluntary turnover. Companies can enhance retention by providing flexible work arrangements, remote work options, and wellness initiatives that prioritize employees' well-being. Promoting a healthy work-life balance boosts productivity and lowers stress, resulting in greater job satisfaction.
4. Strengthen Leadership and Management Practices
Poor management is often cited as a top reason employees leave. Organizations must invest in leadership training to ensure managers foster open communication, provide constructive feedback, and effectively support their teams. Strong leadership creates a positive work environment where employees feel heard and supported.
5. Conduct Regular Employee Feedback Surveys
Understanding what employees value—and what frustrates them—helps businesses make informed decisions about workplace improvements. Regular engagement surveys enable HR teams to identify concerns early and implement data-driven strategies to boost retention.
6. Offer Competitive Compensation and Benefits
While salary isn’t the only factor in retention, fair and competitive pay remains essential. Companies should conduct market research to ensure their compensation packages align with industry standards. Comprehensive benefits increase employee satisfaction, including health insurance, retirement plans, and wellness programs.
What’s A Good Employee Retention Rate?
Your first inclination might be to strive for 100% employee retention. Not so fast! Sometimes, losing a few low-performers paves the way to hiring high-performers. Industries like customer service, food service, and retail have higher turnover than almost any other industry. But for most industries, 90% is generally considered the employee retention rate companies should try to achieve. This is enough to weed out the dead weight while ensuring that your top- and middle-performing employees are challenged, satisfied in their roles, and producing results.
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Related Reading
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