Retention Rate

What is Retention Rate?

Retention rate measures how well a company holds on to its people over a defined window, usually a financial year. You count the employees present at the start of the period who are still on the rolls at the end, then divide by the starting headcount. Attrition (or turnover) counts the same movement from the other side: the employees who left. The two always add up to 100% for a given cohort, so a company with 85% retention has 15% attrition. Retention is measured overall and also cut by team, manager, location, tenure band, and voluntary versus involuntary exits, since a single company-wide number can hide a team that is losing half its staff.

Formula: Retention Rate = (Employees present at period end who were also there at period start / Headcount at period start) × 100 Attrition Rate = 100 − Retention Rate

Example

A team starts the financial year with 50 employees. Over the year 6 of those original 50 resign. Retention Rate = (44 / 50) × 100 = 88%. Attrition Rate = 100 − 88 = 12%. New joiners during the year are excluded from this cohort calculation.

How Retention Rate is used

In an Indian company, HR reports retention rate in the monthly or quarterly dashboard alongside attrition, often split into voluntary (resignations) and involuntary (terminations, layoffs) exits. A drop in retention triggers stay interviews, compensation benchmarking, and manager-level reviews. IT services and BPO firms watch it most closely because 90-day and first-year retention directly affect billing and hiring cost.

Retention Rate FAQs

What is the difference between retention rate and attrition rate?

They describe the same movement from opposite ends. Retention rate counts who stayed, attrition counts who left, and the two add up to 100% for the same period and cohort. If attrition is 18%, retention is 82%.

What is a good retention rate in India?

It depends heavily on the industry. Around 85% to 90% annual retention (10% to 15% attrition) is considered healthy for most sectors, while IT services and BPO commonly run lower at 75% to 82% because of high market mobility.

How do you improve employee retention rate?

Fix the causes surfaced in exit and stay interviews: pay that lags the market, weak managers, no growth path, and burnout. Targeted actions like fair increments, internal mobility, and first-year onboarding support usually move the number more than one-time bonuses.