Kasey LynchOctober 27, 2022
Topics: Employee Experience

What is Employee Retention and Why is It Important?

Employee retention is a critical topic for organizations in every industry. In the wake of the pandemic, Great Resignation, and Quiet Quitting, 50% of global organizations are struggling to find solutions to retention problems.

With employees leaving left and right, candidates taking their time choosing their next job, and c-suite executives scrambling to fill critical roles, companies are sitting in the hot seat.

So what does employee retention mean in your workplace, why is employee retention important, and how can you start measuring the impact of your retention strategies? Keep reading to find out.

What is Employee Retention?


Employee retention refers to an organziation’s ability to keep employees and reduce turnover, meaning it highlights how stable a workforce is within a year’s time. Employee retention rates are shown as a percentage — the higher the percentage, the better the retention rate. Here’s the formula for calculating employee retention:

(Remaining employees / Starting employees) x 100


This calculation accounts for how many individuals left the organization, voluntarily or involuntarily. However, to understand employee retention and it’s impact, businesses must look beyond answering the simple question of “what is employee retention.”

Why is Employee Retention Important?


The answer to this question may seem like a no-brainer. But let’s look at this question in a different light — what’s the real cost of turnover and why is employee retention important?

Your team works really hard to get top talent in the door but without a solid retention plan to support those hires, organizations are forced to keep churning the wheels, wasting valuable budget dollars and taking a hit to their overall profitability.

The cost of losing a handful of employees may not seem like much, but businesses are losing one trillion dollars each year because of voluntary turnover. More specifically, it takes 42 days and costs 21% of an employees annual salary to replace them, on average.


Related: Designing Employee Retention Strategies for 2022



Beyond the balance sheet, high turnover negatively affects customer service, team morale, your company’s reputation, and overall productivity. With available roles piling up and valuable dollars walking out the door, businesses have to shift their focus from continual hiring to improving retention and employee evolution.

But how can you get a clearer, more accurate snapshot of the current state of your workforce before they factor into your employee retention metrics?

How You Should Measure Employee Retention


A retention rate showcases the health of the workforce in relation to physically leaving, but it doesn’t account for employee’s level of engagement, what department they were in, average length of employment, or any other factors that could help your business get granular on where potential problems lie before top talent leaves.

Pairing your employee retention rate with other key performance indicators (KPIs) can highlight the overall health of your workforce. Here are 5 KPIs you should be measuring alongside your employee retention rate:

  • Turnover rate (which is the inverse of your retention rate)
  • Average length of employment
  • Employee engagement metrics
  • Employee absenteeism rates
  • New hire retention rate


All of these metrics combined with your employee retention rate will give your leadership team a better idea surrounding the current state of your talent. Looking at these data points on a regular basis will bring more visibility to your company and over time, they could help measure the success of your retention efforts.

Solving Employee Retention Problems with Employee Evolution Software


Today’s employees are looking for more than just a job. They want a positive work environment, improved benefits, strong sense of purpose, flexible work hours, upgraded PTO, and more. Overall, they want their employers to care about them and provide them with opportunities for growth so they can better contribute to the goals of the business.

Giving your workforce what they need starts with finding the right technology to support the company’s employee retention plan. Leveraging HR technology that uses artificial intelligence is a great way to ensure the platform you choose will evolve alongside your business and employees.

Here are the top 5 features you should look for in the right software:

  1. Unique and personalized career pathing options
  2. Gig marketplaces to connect talent with short-term projects
  3. Mentorship programs with recommended mentor/mentee matching
  4. Ample learning and development opportunities
  5. Data analytics to improve visibility for leadership teams


At Phenom, our technological solutions are focused on empowering employee development through learning and development opportunities, career pathing features, and internal mobility options. By providing employees with the tools they need to evolve, organizations can foster retention throughout the enterprise.


Related: Boost Employee Engagement and Retention With a Talent Marketplace


Discover What Employee Retention Looks Like in Your Business


Defining what is employee retention and understanding why is employee retention important are just the first steps when trying to tackle your company’s retention issues.

There’s no one-size-fits-all solution to retention and turnover problems but gathering data specific to your industry, business, and workforce is the best way to gain a better understanding of what’s going on. Measuring multiple KPIs that highlight how engaged, motivated, and committed your workforce is can help you narrow down which departments might need more attention than others.

Once you discover the areas that need improvement, finding the right software to support retention plans is critical and can make a positive impact in a short period of time.

Ready to gain insight into your workforce and boost retention? Download our Talent Marketplace Buyer’s Guide here.


Kasey Lynch

Kasey is a content marketing writer, focused on highlighting the importance of positive experiences. She's passionate about SEO strategy, collaboration, and data analytics. In her free time, she enjoys camping, cooking, exercising, and spending time with her loved ones — including her dog, Rocky. 

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