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Retention and its levers

What is the retention rate?

Definition

The retention rate is the percentage of employees present at the start of a period who are still employed at the end of it.

Last updated

The retention rate follows one fixed group of people.

Pick a start date and take everyone employed on that day. The retention rate is the share of that group still employed on the end date. Nobody who joins later can enter the group, which is what makes the number a clean read on whether existing employees are staying.

Most teams report it for a year. A quarterly rate is useful as an early read, as long as it is compared with other quarters and not with a full year.

Retention and turnover measure two different groups.

It is the mirror of turnover but not its exact complement, and reading it as one is the most common reporting mistake in this area.

The formula looks only at the people present at the start.

Employees present at both the start and the end of the period, divided by the headcount at the start, multiplied by 100. Anyone hired during the period is excluded from both sides, which is why retention rate and turnover rate rarely add to 100.

Formula

Retention rate = employees present at both start and end ÷ headcount at the start × 100

Here is a worked example with round numbers.

Take an invented company with 200 employees on 1 January. During the year 24 of them leave. It also hires 30 new people, and 6 of those leave again before 31 December.

Employees present at both the start and the end are 200 − 24 = 176, so the retention rate is 176 ÷ 200 × 100 = 88%.

Turnover counts all 30 leavers, the 24 plus the 6 new hires. Headcount ends at 200 − 30 + 30 = 200, so average headcount is 200 and turnover is 30 ÷ 200 × 100 = 15%. A retention rate of 88% and a turnover rate of 15% add up to 103, not 100.

Read the rate by team and against your own history.

A company-wide retention rate can hide one team losing its best people. Split it by team, level and manager, and set it next to regretted attrition: a high retention rate is only good news if the people who left were not the ones you wanted to keep.

Published retention figures rarely say which population they measured, so your own trend is the comparison to trust.

These are the common mistakes with the retention rate.

  • Calculating it as 100 minus the turnover rate.
  • Including new hires in the top of the fraction, which pushes the rate up.
  • Comparing a quarterly retention rate with an annual one. A longer period gives people more time to leave, so the rate falls.
  • Reporting one company-wide figure instead of the rate per team.

Work out your own retention rate.

Enter your starting headcount, how many of those people left, and the people you hired during the period, and the free calculator works out the retention rate.

Calculate your retention rate

Free, no signup required.

These related terms are in the glossary too.

  • Employee retention

    Employee retention is a company's ability to keep the people it wants to keep, for as long as the business needs them.

  • Turnover rate

    The turnover rate is the percentage of your workforce that left during a period.

  • New-hire retention

    New-hire retention is the share of a hiring cohort still employed after a set milestone, commonly ninety days, six months or one year.

  • Headcount and average headcount

    Headcount is the number of employees on the payroll at a point in time. Average headcount is the average across a period, and it is the denominator in most turnover and retention formulas.

  • Regretted attrition

    Regretted attrition is a departure the company did not want: someone whose performance, skills or relationships you would have paid to keep.

  • Employee turnover

    Employee turnover is the movement of people out of a company over a set period, counted as the employees who leave and are replaced.

These pages on this site go deeper.

Back to the HR glossary, where all 52 terms are defined.