A challenge many home service providers continue to face is the retention of key employees. As older professionals retire, the race to hire and retain new talent becomes more crowded and competitive each year. Offering equity programs in the form ofphantom stock or profit sharing has given many businesses an advantage overtheir competition in both attracting new talent and improving their employee retention rate. But how do you know if your efforts are working to retain talent? You have to calculate and track those retention rates.
How To Calculate EmployeeRetention Rates
The first step abusiness must take to evaluate the effectiveness of their equity programs on retention is to compare retention rates before and after its implementation.And to do this, you need to know how. Though it may seem complicated, inreality it’s fairly simple math.
First, you needto understand what we mean by a retention rate. By definition, this rate measures the percentage of your team who stay in place over a period of time. This metric is complementary to the turnover rate, which is the rate at whichemployees leave the company. Both can be used to paint a detailed picture ofwhere your business stands.
Then, a rateformula is chosen and applied over a period of time. For example, if a company wants to compare retention rates month over month, the formula for each month might look like this:
(Number of employees at month’s end /number of employees at the beginning of the month) x 100 = Retention Rate
Another factor toconsider when choosing metrics to include is whether any turnover that month was involuntary, compared to voluntary. Those involuntary numbers might be excluded from the above equation because no incentives were involved in thatbusiness decision.
What Is Considered A GoodRetention Rate?
The easy answer to this is 100%, right? But that isn’t realistic or even desirable. For the most part, companies shoot for a 90% retention rate, meaning 90% of the total staff at month’s beginning is still in place at month’s end.
If you see that your monthly rate is lower than 90%, it’s time to consider why. While it is normal to have some turnover it should be at a sustained level month to month.The following are some suggestions to improve your percentage:
- Phantom stock or profit sharing: Offer equity sharing programs to make employees feel they have some skin in the game, which incentivizes them to stick with the company.
- Value and trust: Show that you value your team and trust their judgement by promoting that trust to the team and your customers. Knowing that leadership finds value in their work encourages employees to remain in their positions.
- Responsibility and challenge: Offering employees challenging, yet rewarding, work keeps them engaged and invested in their outcomes. And entrusting them with the responsibility to see projectsthrough to the end makes them feel valued.
Conclusion
Calculating your retention rate and then tracking it against a timeline of incentive and culture changes is a valuable tool for management. Knowing what works and what doesn’t allow managers to direct their attention where it’s most needed, resulting in a better team and stronger business.
