Retention Rate
Formula (SHRM Standard)
Turnover Rate (%) = 100 − Retention Rate (%)
Annualized (sub-year) ≈ 100 − ( (100 − Period Retention) × Periods per Year )
Worked Example: A 50-Person Company
Suppose you run a 50-person agency. On 1 January you have 50 employees. During the year, 6 people resign and you hire 4 replacements, so on 31 December your headcount is 48, of whom 4 are new hires.
Turnover = 100 − 88 = 12%
Notice the trap this formula avoids: if you had simply compared headcount (48 vs 50), you would conclude you "kept 96%" of your workforce — but 6 of your original 50 actually left. Excluding the 4 new hires from the numerator reveals the true picture: only 44 of the original 50 stayed.
A common follow-up question is what that 12% turnover costs. SHRM estimates replacing an employee costs 50–60% of their annual salary in direct costs, and total costs (lost productivity, training ramp-up, institutional knowledge) can reach 90–200%. For this 50-person company with an average salary of $70,000, six departures represent roughly $210,000–$420,000 in replacement costs alone — which is why even a 2–3 point retention improvement has a measurable P&L impact. You can estimate your own figure with our Cost Per Hire Calculator.
How to Interpret Your Result
- 93%+ — ExcellentYou are outperforming nearly every industry benchmark. Watch for the opposite risk: retention this high with no internal movement can signal stagnation or below-market attrition of underperformers.
- 88–93% — HealthyAt or above the US cross-industry average. Focus on retaining your top performers specifically — overall retention can mask regrettable attrition in key roles.
- 80–88% — Watch zoneBelow average for most white-collar industries (though normal for healthcare or manufacturing). Segment by department, manager, and tenure band to find where departures cluster.
- Below 80% — Action neededUnless you are in retail or hospitality, losing more than 1 in 5 employees a year compounds hiring costs and drains institutional knowledge. Run exit interviews and stay interviews before assuming pay is the cause.
Two caveats when reading your number. First, company-wide retention hides segment problems: 90% overall can coexist with 60% retention on one team under one manager. Recalculate per department or per manager if you have more than ~30 employees. Second, short measurement periods are noisy: in a 20-person company, one resignation in a month is a 5-point swing. For teams under 50, quarterly or annual measurement gives more meaningful trends than monthly.
US 2026 Industry Benchmarks (Annualized Retention)
| Industry | Avg Retention | Status |
|---|---|---|
| General / All Industries | 88% | Baseline |
| Technology / SaaS | 86% | Near avg |
| Financial Services | 90% | Above avg |
| Healthcare | 82% | Below avg |
| Manufacturing | 85% | Near avg |
| Retail & E-commerce | 74% | Low |
| Hospitality | 68% | Very low |
| Professional Services | 89% | Above avg |
| Government / Public | 93% | High |
Benchmarks are annualized estimates derived from US Bureau of Labor Statistics JOLTS separations data and published SHRM turnover research, rounded for comparison. Retention varies significantly by region, company size, and role mix — treat these as directional reference points, not targets. Last reviewed: July 2026.
How to Improve Employee Retention
- Competitive CompensationBenchmark salaries yearly; adjust for inflation & market shifts.
- Career Growth PathsPublish clear promotion criteria and invest in L&D programs.
- Manager TrainingPeople quit managers, not companies. Coach your team leaders.
- Flexible WorkHybrid & flex schedules can boost retention by up to 20%.
- Stay InterviewsAsk top talent what would make them leave - then fix it proactively.
Frequently Asked Questions
What is employee retention rate?
The percentage of employees who stayed with your company during a defined period, excluding new hires added during that period.
What is a good retention rate?
Above 90% (annualized) is strong. The US 2026 cross-industry average is approximately 88%.
How do you calculate retention rate?
((Employees at End − New Hires) ÷ Employees at Start) × 100. This is the SHRM standard formula.
What is the difference between retention and turnover?
They are inverses. Turnover Rate = 100% − Retention Rate. Turnover measures who left; retention measures who stayed.
Why exclude new hires from the formula?
Retention should reflect the original workforce. Including new hires would artificially inflate the rate and hide real attrition from your starting headcount.
How is retention different from stability rate?
Retention rate looks at everyone employed at the start of the period. Stability rate is narrower: it tracks only employees with at least one year of service, filtering out early-tenure churn. If your retention is low but stability is high, your problem is first-year attrition — usually an onboarding or hiring-fit issue rather than a culture issue.
Should I count involuntary terminations against retention?
The standard formula counts all departures — voluntary and involuntary. For diagnosis, though, track them separately: high voluntary attrition points to engagement, pay, or management problems, while high involuntary attrition points to hiring or performance-management problems. Many teams also track "regrettable attrition" (departures they wanted to prevent) as the most actionable subset.
How often should a small business measure retention?
Quarterly is the sweet spot for companies under 200 employees: monthly numbers swing too much with small headcounts, while annual measurement hides trends until it's too late to act. Whatever cadence you choose, keep it consistent so periods are comparable.
Is this tool free?
Yes - 100% free, no login required, and no data is stored or uploaded anywhere.