Turnover Rate & Retention Rate

Employee turnover rate affects everything—from team morale to a company’s bottom line. For HR professionals, understanding what drives turnover isn’t just a task, it’s a necessity. By unpacking its causes and consequences, you gain the insights needed to manage retention rates effectively and support long-term organizational success.

This article dives into what turnover really means, why it matters, and how it shapes your role in HR.

What is Turnover? Definition & Importance

Understanding what is turnover rate is essential for HR professionals seeking to build a stable and effective workforce. This key metric provides insight into organizational health, employee satisfaction, and areas for improvement in talent management, making it a critical tool for aligning workforce strategies with business goals.

Definition and Calculation of Turnover

Employee turnover is the rate at which employees leave an organization within a specific timeframe, including voluntary and involuntary exits.

Calculated by dividing the number of departures by the average number of employees during the period (e.g., 20 exits out of 200 employees equals a 10% turnover rate).

Costs of High Turnover

Direct Costs: Recruitment fees, job postings, and onboarding expenses. For example, replacing an employee can cost several hundred to thousands of dollars or euros, depending on the role.

Indirect Costs: Lost productivity, reduced morale, and team disruption. New hires often take months to reach full productivity, impacting overall performance.

Impact of High and Low Turnover Rates:

• High turnover erodes performance, increases costs, and strains team dynamics.
• Low turnover often indicates higher employee satisfaction, better workplace culture, and stronger team cohesion.

Strategic Importance of Managing Turnover:

• Helps identify patterns (e.g., high exits in specific departments or roles).
• Reveals root causes such as inadequate compensation, poor management, or limited career development opportunities.
• Enables targeted interventions for high-stress or stagnant roles to reduce exits and retain institutional knowledge.

By monitoring and managing turnover rates, HR teams can proactively address challenges, improve workplace stability, and drive long-term organizational success.

How to Calculate Turnover Rate (With Formula)

To understand and address employee turnover effectively, it’s important to know how to calculate turnover rate. This calculation provides a clear view of workforce stability, helping you analyze potential challenges and develop retention strategies.

Formula for Turnover Rate

(Number of employees who left during a specific time period ÷ Average number of employees during that period) × 100.

Here’s how each part of the formula works:

• Number of employees who left: This includes resignations, terminations, and retirements. For example, if 15 employees leave over a six-month period, this is the figure you’ll use. Make sure to count all forms of voluntary and involuntary exits.
• Average number of employees: To calculate this, add the employee headcount at the start and end of the period, then divide by two. For example, if your company starts the year with 100 employees and ends with 90, the average number of employees would be (100 + 90) ÷ 2 = 95.

Accurate tracking of these figures is critical. Errors—such as missing data or inconsistent timeframes—can distort the results, leading to flawed analyses.

Once calculated, the turnover rate becomes a key metric for HR. It helps you identify trends, such as seasonal spikes in resignations or higher turnover in specific departments. These insights allow you to diagnose potential causes, like management issues or lack of career growth opportunities. With this knowledge, you can design targeted interventions to retain talent and stabilize your workforce.

The Impact of High Turnover Rates on Business

A high turnover rate can significantly affect a business in multiple ways, impacting finances, productivity, morale, and long-term growth. Below are the key areas where high turnover rates can harm a business:

Financial Costs

• Recruitment and onboarding expenses increase due to frequent hiring.
• Training costs rise as new employees need to be trained.
• Lost revenue from vacant roles or underperforming hires can lead to missed opportunities.

Reduced Productivity

• Loss of experienced employees affects team performance.
• Remaining employees may struggle with added workloads, leading to burnout.
• New hires take time to reach full productivity, affecting team efficiency.

Negative Workplace Morale

• Frequent departures increase stress and lower employee morale.
• Constant turnover disrupts team cohesion and collaboration.
• Persistent exits can erode trust in leadership and the company’s stability.

Damage to Employer Brand

• High turnover damages the company’s reputation, making it harder to attract talent.
• Job seekers may view the company as unstable, reducing applicant quality and quantity.

Impact on Customer Satisfaction

• Inconsistent service quality due to staff changes can affect customer relationships.
• Losing key customer-facing employees may lead to client dissatisfaction.

Strategic Disruption

• High turnover delays projects due to lack of experienced personnel.
• Turnover in management weakens strategic direction and decision-making.

Addressing high turnover is essential for business stability, employee morale, and long-term success.

What is Retention Rate and How to Calculate It

Knowing what is retention rate and tracking employee retention rates is crucial for managing workforce stability and assessing your organization’s ability to keep valuable employees. High retention rates directly contribute to organizational success, and knowing how to calculate and interpret this metric provides actionable insights for refining talent management strategies.

What is Retention Rate?

Retention rate measures the percentage of employees who stay with your organization over a specific period, focusing on retained employees rather than those who leave. This makes it a complementary metric to turnover rate. The formula for calculating retention rate is:

Retention Rate=(Number of employees retained during a specific periodTotal number of employees at the start of the period)×100\text{Retention Rate} = \left( \frac{\text{Number of employees retained during a specific period}}{\text{Total number of employees at the start of the period}} \right) \times 100

For example, if your company started the year with 100 employees and retained 85 by year’s end, your retention rate would be 85%.

Choose the Right Time Period

Selecting a consistent and relevant timeframe for measurement is key to obtaining actionable data:

• Quarterly Retention Rates: Useful for identifying seasonal trends or the effects of recent workplace changes, like adjustments to remote work policies.
• Annual Retention Rates: Provide a broader view of workforce stability and allow for benchmarking against industry standards. For example, retaining 900 out of 1,000 employees over a year signals strong retention practices.

Why Does Retention Rate Matter?

Retention rate is a vital metric for monitoring workforce stability over time. When tracked consistently, it helps HR professionals make informed decisions to enhance employee satisfaction and engagement.

Retention Ratio: How to Measure Employee Retention

Measuring employee retention is essential for evaluating workforce stability. The retention ratio is a simple yet effective metric that helps assess your organization’s ability to retain employees over a specific period. It provides valuable insights into retention challenges and supports strategic HR planning.

Formula for Retention Ratio

Retention Ratio=(Number of employees retained during a specific periodTotal number of employees at the start of the period)×100\text{Retention Ratio} = \left( \frac{\text{Number of employees retained during a specific period}}{\text{Total number of employees at the start of the period}} \right) \times 100

For example, if an organization starts the year with 100 employees and retains 85 by the end, the retention ratio would be 85%. Similarly, for a smaller company with 20 employees, retaining 18 would yield a 90% retention ratio. However, losing two employees in a smaller workforce may feel more impactful compared to a larger one.

Retention Ratio vs. Retention Rate

Although “retention ratio” and “retention rate” are often used interchangeably, they can have distinct applications. The retention ratio specifically tracks employee stability within a defined timeframe, while the retention rate may encompass broader insights, such as the quality of retention strategies or trends over multiple periods. Recognizing this distinction ensures you choose the appropriate metric for analysis and reporting.

By accurately measuring retention, organizations can better understand workforce dynamics and make data-driven decisions to improve employee satisfaction and stability.

How to Reduce Employee Turnover and Increase Retention

Knowing how to reduce turnover and fostering retention are key to building a stable and engaged workforce. Achieving these objectives requires targeted strategies that enhance employee satisfaction and encourage long-term commitment. By addressing areas like compensation, career growth, and workplace culture, you can create an environment where employees thrive and choose to stay.

Competitive Compensation and Benefits

• Offer salaries aligned with industry standards (e.g., within 10-15% of benchmarks in tech and finance sectors).
• Include attractive benefits like health insurance, retirement plans, and paid time off.
• Provide flexible work arrangements, such as hybrid or remote options, to support work-life balance.

Professional Development and Career Growth

• Offer training programs, certifications, and leadership development initiatives.
• Establish clear pathways for career advancement and regularly discuss career goals with employees.
• Align employee aspirations with organizational opportunities to demonstrate long-term commitment.

Positive Workplace Culture

• Ensure managers communicate effectively, set clear expectations, and provide constructive feedback.
• Implement recognition programs like quarterly awards or performance bonuses to boost morale.
• Maintain open communication through feedback surveys and one-on-one meetings to ensure employees feel valued.

By focusing on these strategies, HR professionals can improve retention rates, enhance employee satisfaction, and build a more committed workforce.

Turnover vs. Retention: Why Both Matter

Turnover and retention are interconnected metrics that help assess workforce stability. Turnover reflects the frequency of employees leaving, while retention measures how successfully your organization keeps them. Together, these metrics offer valuable insights into workforce dynamics, allowing HR professionals to identify patterns, predict challenges, and develop effective strategies for managing talent.

Identify Trends in Specific Departments or Roles

High turnover in certain teams (e.g., 20% turnover in a sales team) may point to issues like management problems, heavy workloads, or skill mismatches.

Pinpoint Retention Success Factors

Retention success factors, such as career development opportunities or workplace culture, help guide strategies for keeping employees engaged.

Evaluate HR Policies

Tracking changes in turnover and retention after implementing new policies (e.g., flexible work options) helps assess their effectiveness.

Proactive Actions Based on Data

Data showing turnover spikes in the first 90 days might signal a need for improved onboarding. Conversely, high retention in senior roles could indicate a lack of opportunities for junior employees.

By analyzing both turnover and retention, you can take targeted actions to improve employee engagement, reduce hiring costs, and enhance organizational growth, ultimately strengthening your company’s market position.

Conclusion

Turnover and retention are two sides of the same coin—both are critical for understanding workforce dynamics and driving HR strategy. High turnover impacts productivity, morale, and costs, while strong retention supports stability and growth. Addressing both metrics collectively ensures a balanced approach to managing talent. Ultimately, the goal isn’t just filling roles but fostering a workforce that thrives and propels the organization forward.

Ready to Optimize Your Turnover and Retention Strategies?

Understanding and effectively managing employee turnover and retention rates is crucial for building a resilient and engaged workforce. To help you get started, use our employee retention rate calculator to measure retention more accurately and gain valuable insights into workforce stability. If you’re ready to dive deeper, check out our comprehensive guide on how to calculate employee turnover and ensure your organization is using precise metrics. Looking for actionable strategies to retain top talent? Explore our insights on reducing employee turnover and create a more stable, productive workplace today.

Take the next step toward workforce excellence—because better data leads to better decisions.

FAQ

What Is Employee Turnover And How Is It Calculated?

Employee turnover is the rate at which employees leave a company and are replaced. It’s a key HR metric that impacts organizational stability and costs. To calculate it, divide the number of employees who left during a specific period by the average number of employees during that time, then multiply by 100 to get a percentage. High turnover might indicate workplace issues, while low turnover often reflects strong retention practices. Understanding turnover helps organizations in Europe and North America improve employee satisfaction and retention strategies, fostering a more engaged and productive workforce.

What Is Employee Retention Rate And How Does It Differ From Turnover?

Employee retention rate measures the percentage of employees who stay with a company over a specific period, reflecting workforce stability. In contrast, employee turnover tracks the rate at which employees leave and are replaced, highlighting workforce changes. Retention focuses on keeping talent, while turnover emphasizes departures. Both metrics are key for understanding workplace dynamics, with high retention often signaling employee satisfaction and low turnover indicating organizational health.

What Are The Average Turnover Rates In Europe And North America?

Average turnover rates vary by industry and region, but in Europe, they typically range from 5-15%, with lower rates in sectors like education and public services. In North America, turnover rates are generally higher, averaging around 18-22%, driven by more dynamic job markets and industries like retail and hospitality experiencing higher churn. These rates highlight regional differences in workforce stability, influenced by economic, cultural, and labor market factors.

What Are Some Key Strategies For Improving Employee Retention?

Focusing on competitive compensation, fostering a positive workplace culture, and offering career development opportunities are critical for improving employee retention. Prioritize work-life balance, flexible work arrangements, and recognizing employee achievements to improve satisfaction. Clear communication and regular feedback strengthen trust and engagement, while tailored benefits appeal to diverse workforce needs.