Why You Should Be Tracking Employee Retention Rate
Losing a team member isn’t just a hassle—it’s expensive.
If you’ve ever had to replace a great employee, you know the toll it takes. There’s the cost of recruiting and training, the drop in productivity, and the stress of holding everything together in the meantime. But here’s the thing: most business owners don’t actually know how often they’re losing people or what it’s costing them.
That’s where your Employee Retention Rate (ERR) comes in.
Why ERR matters more than you think
Your ERR is a simple but powerful metric that shows how well you’re keeping your team over time. And when you're thinking about adding a new hire, this number can offer unexpected insight. If your turnover is high, the issue may not be headcount; it may be something deeper.
Here’s a real-world example:
One of our clients, a service-based business doing about $2.4M in annual revenue, added fractional CFO services to their monthly bookkeeping engagement with us. They had strong systems for job costing, profitability by employee, and tracking COGS. But they still felt shaky every payroll cycle, especially when larger clients were late in paying.
When we looked closer, we found they weren’t tracking retention at all. After helping them calculate it, here’s what we uncovered:
Every technician turnover cost them roughly $6,000 in hiring and training
It took 2–3 months for new hires to reach full productivity
And they lost an estimated $20,000 in revenue from delayed jobs
Once the numbers were in front of them, the path forward was clear: improving retention by even 10% would have saved enough to cover a new van they’d been putting off.
Run your numbers
You don’t need a fancy dashboard to get started. Just carve out a few minutes and grab your payroll records.
Here’s the formula:
ERR = (Employees who stayed all year ÷ Employees at the start of the year) × 100
Now ask:
What’s causing turnover when it happens?
Are your systems setting new hires up to succeed?
Is your business really ready to bring someone else in, or do you need to strengthen the foundation first?
Thinking about hiring?
Before you post that job ad, take a moment to assess what’s really going on with your current team.
Read our workshop recap: Am I Ready to Hire My Next Employee?
You’ll get clear, expert-backed insight on how to make your next hiring decision with confidence, not guesswork.