Go beyond a basic 401(k)
Give your employees more than just a 401(k), join the movement.
Give your employees more than just a 401(k), join the movement.
Your goal: figure out the specific calculations for important employment metrics like turnover rate and retention rate.
Our goal: Make it so you don’t have to Google this ever again.
With those goals in mind, let’s get right to the calculations!
Want to skip ahead? Use these links to get straight to the information you need:
Turnover is the number of employees that have to be replaced in a given period of time. Turnover rate is that value expressed as a percentage.
(# of separations / average # of employees) x 100 = turnover rate
Turnover equals** number of separations** divided by the **average number of employees **during the same period. We then **multiply the result by 100 to get our turnover rate. **
*You can also cut the ‘multiply by 100’ part of the turnover formula if you set the cell format to ‘Percent’
Here are a few examples of calculating turnover rate for different periods of time and hiring situations.
Example #1: A resort has 82 average employees. During April, 4 of their maintenance staff were let go and replaced.
(4/82) x 100 = 4.8% monthly turnover rate
Example #2: At the start of Q1, a restaurant had 14 employees. Their head chef retired and had to be replaced. They also hired two additional dishwashers, but ended up firing one of them (15 employees total by the end of Q1).
(2/((14+15)/2)) x 100 = 13.8% quarterly turnover rate
Example #3: Over a full year, a tour company with 54 employees had 3 guides and 4 assistants leave, but hired 4 new guides, 2 rafting coaches, and 3 assistants.
(7/((54+56)/2)) x 100 = 12.7% annual turnover rate
Turnover costs are a normal cost of doing business. People leave, people get hired, life goes on. But turnover can be expensive – particularly once you begin to factor in the true costs.
These costs can include things like job postings, lost productivity, training time, exit-interviews, etc.
The full cost of turnover isn’t easily calculated. For typical employees, turnover costs can average from 10% to 50% depending on the industry and organization – but for more senior or highly skilled employees, the cost can be enormous. Costs for replacing an executive or high-level employee can be upwards of 200%.
There are a variety of ways to calculate turnover costs, ranging from extremely simple to audit-level complex. We’ve offered both. Directly below is the simple formula, but you can also download the Excel sheet for the full breakdown.
# of employees lost x (average cost of replacement x average employee salary) = turnover cost
We don’t want to take up a huge amount of space – there are other important calculations to get to, so here’s a pre-made Excel sheet (it also includes all the other calculations we cover here).
Note: Use this as a guide – there may be costs in our sheet that you don’t pay – or a turnover related cost we’ve left out that frequently gouges your bottom line. Please feel free to change our table to fit your needs.
Because we’re using such a basic calculation, we’ll just use our first example. We’ve used the general average cost of replacement, 30%, for this calculation. This number is relatively conservative, however, and you’ll only get a truly accurate result by finding replacement costs for your individual business.
Example #1: A resort has 82 average employees. During April, 4 of their maintenance staff were let go and replaced. The average employee salary is $37,000
4 x (.30 x 37,000) = $44,400 turnover cost
The Retention rate is defined as the percentage of employees who remained on staff from the beginning to the end of a time period. Basically, the percentage of employees that stuck around?
(# of employees who stayed for the whole time period / # of employees at the start of the time period) x 100 = retention rate
Retention equals** number of employees who stayed for the whole time period*** divided by the number of employees you had at the start of the time period. We then **multiply the result by 100 to get our retention rate. **
*You can also cut the ‘multiply by 100’ part of the retention formula if you set the cell format to ‘Percent’
*If you get a #DIV/0! error in Excel, you may have to adjust the cell numbers in the formula
Here’s a variety of example retention rate calculations. For the sake of keeping everything easy-to-follow, we’ll use the same examples from before (turnover rate) to calculate some examples of employee retention rates:
Example #1: A resort has 82 average employees. During April, 4 of their maintenance staff were let go and replaced.
(78/82) x 100 = 95.1% retention rate
Example #2: At the start of Q1, a restaurant had 14 employees. Their head chef retired and had to be replaced. They also hired two additional dishwashers, but ended up firing one of them (15 employees total by the end of Q1).
(13/14) x 100 = 92.9% retention rate
Example #3: Over a full year, a tour company with 54 employees had 3 guides and 4 assistants leave, but hired 4 new guides, 2 rafting coaches, and 3 assistants.
(47/54)*100 = 87% retention rate
There’s an important distinction to make note of when reporting retention and turnover. You’ve probably noticed in our examples, but retention does not count employees who were hired and left within the specified time period.
For example, if my business had to fire and replace an employee, that would be reflected in my retention rate. However, if I hired a new employee, then decided to remove the position and let them go, that wouldn’t be reflected in my employee retention calculation – even though it’d likely cost time and money.
It’s particularly important to look at both turnover and retention rate when analyzing your workplace makeup. These help you get a clear picture of your organizational trends and address detrimental patterns.
The natural first step after figuring out your own rates is to find something to compare them to. The industry average is a good place to start. Here’s a helpful table of industry average for the last three years (to give some more perspective).
Side Tip: As nice as it is to get a quick baseline, don’t use the industry average as much more than that. Even if your rates are low, turnover is always costly, and retention consistently beneficial.
Is your turnover rate nice and low or worryingly high? What does that mean for your business, specifically? Discover the benefits of high employee retention in this post.
Congrats! You’ve gotten turnover and retention rates taken care of. As you dig deeper into your workforce stability, there are a number of other metrics that can also be useful for your analysis.
These metrics answer questions like:
We’ll break them down (briefly) below:
This metric answers: what’s the turnover rate for employees who chose to leave?
This is an important metric for businesses who want to keep valuable talent. A voluntary separation is any time an employee chooses to leave – instead of retiring, being fired, laid off, etc. Exit interviews can help you determine the causes behind voluntary separations and help you formulate a better employee retention strategy.
Here’s the voluntary turnover rate formula:
(# of voluntary separations / average # of employees) x 100 = voluntary turnover rate
This metrics answers: what is the average amount of time employees stay at the company?
Employee tenure helps you get an idea for long long your staff generally sticks around. Depending on the situation for an employee, this can vary greatly, so it can be a good idea to break up this metric by a meaningful category like position. You can also calculate this metric for employees who have left – letting you know the average tenure of the “leavers” as well as the “stayers.”
Here’s the formula:
(Total # of months worked by your employees/ # of current employees) = average employee tenure
Sidenote: To get the total number of months worked by your employees, count up from each employee’s hire date, record the number, then total them.
This metric answers: Many different questions – in our example: what is the turnover rate for a specific supervisor?
You can break out your rates by special situation and more fully develop a picture of your employee management. This can point out particular areas of weakness or strength in your business, like good leaders or overstretched departments.
(# of separations underneath Supervisor Name / total # of separations) x 100 = supervisor-specific turnover rate
Staying organized isn’t an exciting tip, but it is incredibly important. This makes it so you don’t have to look these up every few months (not that we don’t love seeing you). Download the calculations sheet, make it your own, and save it. Each time you calculate turnover, be sure to compare the results to your previous calculations, so you can track and benchmark how your turnover has changed over time.
Please feel free to bookmark this page.
Check the calculations and formulas that you currently use – they may be different from what we list here. To be conservative, you may choose to use and keep track of both calculations.
Sidenote, while you do this, make sure that all the calculations you are running are based on the standard time period used in your reporting.
It’s the golden rule of human resources documentation. Leaving easy-to-understand documentation is not only a thoughtful gesture to anyone else who has to deal with these details, but it can also save future-you a headache. Once you’ve got your calculations sorted out like you want, keep them that way for the future.
This will help you position your business as a favorable employer in the market. If you know how poorly (or fantastically) your local competition is doing, it will help you better strategize on how to retain your own talent (and maybe attract some of theirs).
Tip: Track Trends and Review History
Going back and tracking your historical employee turnover and retention rates can be helpful for determining what strategies you might use to improve them. What has worked in the past? What haven’t you tried yet? What are your most high-cost positions? What have you done in the past to retain these employees? Historical analysis of your employee trends can tell you this information.
Some businesses don’t have a turnover problem – but each employee lost is a painful cost for every business. From the man hours spent on dealing with hiring and training to tens or hundreds of thousands of dollars in compounded lost profit, the costs from turnover can really sink your balance sheet.
You’ve already taken the first step to tackle turnover costs. Now you’ve got the calculations you need to take the next step and put your newfound insights into action. You can implement initiatives and benefits (like a retention-optimized 401k) aimed at warding off turnover.
Whichever direction you choose, getting started as soon as you can is your best bet, so we won’t delay you and longer. After all, as every calculation in this post reiterates, time is money. Go forth and calculate!
Give your employees more than just a 401(k), join the movement.
