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Retention vs. Turnover - Understanding the Difference

Which one you should you prioritize? The answer might surprise you.
Kwantek Team

In the janitorial and security industries, it’s difficult to keep good people employed for any length of time. As strategic partners with end-to-end solutions specific to the janitorial and security industries, Kwantek and TEAM Software know how important issues like retention and turnover are to your business.

We hear it every day from our customers, prospects and industry partners. With so many things you can’t control — high labor costs, fierce competition and thin margins — taking control of something you can like retention, is a game changer.

Many of the organizations we work with view turnover and retention challenges as a given, and in many ways, that’s true. Let’s face it: these aren’t the highest paying jobs, and it’s not the most glamorous work. We can expect the revolving door to move a little faster than you’d see in a white-collar industry, for example.

In this five-part blog series, Kwantek and TEAM Software are partnering together to take a deep dive into employee retention, and how you can use data to move your company forward.

Despite the challenges you face when you’re managing a distributed workforce, there is always room for improvement and your organization should (and likely does) focus heavily on making sure your employees stick around for as long as possible.

The advantages of improving your retention rates are worth the effort you make. You’ll reduce your overall cost per hire. Your clients will be happier seeing the same faces. You’ll be in a better position to scale your business. The list goes on and on.

After speaking with dozens of janitorial and security industry executives, it became clear that there was a disconnect between retention and turnover. Most companies only look at one of these two metrics — turnover.

Turnover numbers are easier to calculate and can paint a pretty good picture. But, it’s not the whole picture. In fact, a high turnover rate could even be a good thing in some cases.

Retention is the metric that can show whether your efforts to keep employees are working, whether you have a particularly effective (or ineffective) site manager and how you can shift your hiring strategies to focus on employees that stay the longest.

The first step toward using your company’s retention and turnover data is answering a simple question: what’s the difference between retention and turnover? It’s easy to confuse the two, so here’s the easiest way to calculate both metrics:

 
How to Calculate Your Annual Turnover Rate:

(number of W-2s issued in a particular year ÷ number of active employees at the end of that year) - 1
Note: If your active employee count increased during the year, subtract the increase from the number of W-2s before using the formula above. 

 
How to Calculate Your Annual Retention Rate:

number of employees hired in the year that remained employed for more than 365 days ÷ total new hires made during the year

 

Here's an example.

 

  # of Employees W-2s Issued Turnover Rate

Hires Retained
365+ Days

Annual Retention
Rate

Company A 500 1000 100% 250 50%
Company B 500 850 70% 70 20%

On the surface, Company B seems to be outperforming Company A, with a significantly lower turnover rate. But, when you take a closer look at retention, you realize half of the employees hired at Company A have been retained for more than one year.

Company A actually cycles through employees faster than Company B, but is able to find employees that want to stick around longer.

Consider the following scenario: Company A and Company B each acquire a new contract that requires ten new hires at the site. At the end of the first year, Company A retained five of the original hires, versus only two at Company B.

By focusing more on retention, Company A can hire fewer employees than Company B in the following years, reducing hiring and administrative costs, and making their clients happier.

When you pair Kwantek’s applicant tracking system with TEAM’s all-in-one financial, operations and workforce management solution, you get the full picture of your data (including things like retention) to get a better grasp on how you can improve your business.

In our next blog, we’ll take a more detailed look into those costs, and what costs should be included in your true cost per hire. Scroll to the bottom and subscribe to the blog, because you won’t want to miss it.

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