When your employee retention rate is high, your workplace will generate optimal results. From increased revenue to better customer experiences, your employees will create positive impacts, leading to continued success for the organization.
Conversely, a workplace that is constantly replacing employees will incur avoidable costs in recruiting, onboarding and training new workers. Additionally, there will be lapses in efficiency and gaps while new employees get up to speed.
Employee retention is an important business metric and should be measured regularly. What is employee retention? It’s your ability as an employer to hold on to talent and to keep them from voluntarily leaving your company. You can calculate your employee retention rate by choosing a timeframe and dividing the number of employees who remain at the end of that timeframe by the number of employees who were there at the start of the timeframe (see the linked post for more details and examples).
Employee retention rates tend to vary by industry and location. However, most experts agree that a good employee retention rate is 90 percent or higher.
Why does employee retention matter so much? Read on to find out.
Why is employee retention important?
Employee retention is a critical indicator of the overall health of your organization. Retention rates reflect how strongly inclined your employees are to remain employed with your organization.
Every day, employees are making major decisions about whether to work for your business. As critically, they are thinking about how they work. Employee retention plays a role in the strength of teams, incentivization, the work environment, and how hard employees work.
The agreed-upon indicator is that a 90 percent rate or higher is considered a good employee retention rate. If your organization is grappling with high turnover rate, it’s important to develop strategies to boost employee retention.
In some organizations, the importance of employee retention may be perceived as low. One way to increase the perceived value of retention is to understand the benefits. From increased productivity and revenue to lower recruitment costs, the benefits of employee retention are considerable.
What are the benefits of employee retention?
Here’s a deep dive into ten benefits of high employee retention. By understanding the impact of low employee turnover on your organization, you can focus on keeping your top talen happy and therefore, making your company stronger and more successful.
Reduced recruiting and training costs
Consider the costs of finding and training each new employee. Every time an employee leaves, your organization faces the likelihood of having to replace the departed team member.
Employee recruitment costs, in money and time, are considerable. They include:
Reviewing work done by the departed employee and reassigning
Editing job descriptions
Posting job opportunities online and in print
Forming search committees
Reviewing resumes and cover letters
Screening candidates
Conducting multiple rounds of interviews
Negotiating salaries
Paying for relocation, if applicable
Once an employee is hired, they need to be trained on the systems, technologies, and procedures used within the organization.
These costs can be significantly reduced if employee retention rates are high. The fewer employees who leave means less time for hiring managers and human resources staff on the work related to hiring and training. That means more work on more profitable activities. Essentially, lower turnover rates result in lower turnover costs.
Increased productivity and efficiency
In theory, the longer an employee is in their position, the more efficient they’ll be at their job. Employees who’ve been on the job longer will know the technologies and tools well. They will have figured out how to get work done.
When employees leave, the work dynamic changes. Other employees may need to pick up the work of past employees, making it more difficult to complete their own work.
Understaffed teams are likely to incur more overtime, make more mistakes, cause production delays, and have lower quality work produced.
It can take as long as 1 – 2 years for a new employee to achieve the same level of productivity as their predecessor. That’s a long time and a lot of lost productivity for an organization to absorb. In addition, new employees will need time to establish relationships with colleagues, partners, and customers.
Better company culture
If employees are constantly coming and going, it can make for a poor company culture. Frequent departures make it difficult for existing employees to form relationships and feel a sense of connection and belonging in the workplace. They can be guarded in forging relationships with colleagues who may not last for long.
Shifting company culture can be complex. It often begins with identifying employees who are negative influences and working with them or removing them from the organization.
Other steps include identifying and communicating workplace values and a clearly defined mission. Establishing the behaviors that are expected is important messaging. And while reinforcing those behaviors may appear to be heavy-handed, it’s a necessary step.
There’s a bit of a chicken-or-the-egg approach to culture and retention. A positive culture can lead to increases in retention. But key departures can also deter the culture, meaning organizations need to carefully plan and act accordingly.
Deepened institutional knowledge
Retaining long-term employees means they’ll have more institutional knowledge and industry experience. That institutional knowledge is considerable and, in many cases, immeasurable.
The loss of institutional knowledge requires hiring, training new hires, and time and money to replace. With each departure comes the opportunity cost. The organization loses the potential future knowledge potential that could be built upon the baseline of expertise.
When the departures are of highly skilled or senior employees, the costs are even more significant. In such cases, the time it takes to replace, train and bring up-to-speed successors increases.
For employees who have remained on the job for years, there’s a pass-through impact of knowledge. They are likely to share what they have learned with newer, more inexperienced colleagues. Those informal, on-the-job insights are often hard to measure but their impact is significant.
When experienced employees leave, those moments of skill-sharing get lost, too. Those losses can lead to lower collective productivity and increased training costs.
With top talent, the loss of institutional knowledge can have adverse effects on teams. Coworkers or subordinates may become demoralized by the loss of expertise and the pressure to retain productivity or results.
Improved company reputation
Each company carries with it a reputation earned over time. Many factors contribute, including the quality of products and services and the impact on lives or communities.
Your current employees play a role in developing your company’s reputation, too. So does your retention rate. If your company is known as a revolving door, people may avoid applying to your company. Employees, current and past, will also talk about your organization with neighbors, friends, and family.
Keeping employees long-term can boost your reputation and create advantages that affect multiple areas of the business positively.
Increased engagement
Employee engagement is a measure of how connected employees are to their work, to the organization, to their fellow colleagues, and to their employers. Engaged employees are closely aligned with the organization’s mission, values, goals, and tactics. Such employees feel as though their work matters and plays a role in supporting the work of the organization.
People are more likely to engage with the company if their coworkers are not constantly coming and going. In turn, increased engagement also leads to higher retention rates, so employee engagement can be very beneficial.
A positive employee experience helps boost employee engagement. Those experiences range from the work done to the workplace climate. By measuring engagement, employers can understand how connected employees are and work at improving low levels.
Employee engagement is usually highly correlated with higher retention rates. Organizations that focus on retention will see improved employee engagement and vice versa.
Improved employee loyalty
There’s an old saying that people don’t leave companies; they leave bad relationships, especially with bosses. People feel more loyal to a company when they have relationships and trust with their coworkers and superiors.
Today, millions of employees are quitting their jobs every month. Whether you call it quiet quitting or the Great Resignation, the reality is acute. Employees are no longer feeling as loyal to their employers.
When you improve your retention rates, employees will see it. Their colleagues will stay with the company longer. They will turn down other opportunities because they believe in the organization that employs them.
What are the types of retention strategies that boost loyalty? Consider flexible work arrangements, an assessment of your benefits, and recognition programs as important factors. Invest in your employees via training and career development programs that boost skills and experiences.
The result of those initiatives is employees who feel more loyal and valued.
Increased revenue
There’s a measurable impact of the benefits of employee retention. Consider the financial impact alone of an experienced workforce that is efficient and productive. The collective influence of those programs on your bottom line is likely considerable.
If your employees are more efficient and know your products and services well, it’s likely that sales will increase. The collective value of institutional knowledge and efficiency are also multipliers to revenue and earnings growth.
Consider the impact from the other perspective. Low employee retention rates require more resources spent on recruitment and training programs. It means rebuilding relationships with customers and colleagues while taking considerable time to get up to speed on work processes.
Better customer service
Customers today expect deep, significant, and knowledgeable experiences with the brands they frequent. They expect brands to know them, their histories, and their needs. These expectations carry through across channels, with seamlessness between online and in-person engagements.
Those expectations are steep and require brands to have employees’ families with products, services, and the customers that buy them. Turnover can take a toll on customer experiences, taking longer to complete work and making more mistakes.
Poor customer experiences have significant consequences. There are financial and reputational risks as customers turn elsewhere and leave negative reviews. They are also more likely to speak poorly of the company and their interactions with ill-prepared employees.
On the reverse side, better retention rates mean improved customer relationships.
Employees who are experienced working with customers and their needs and customer experiences will be better. And employees who have good relationships with customers will have higher morale and are less likely to become discouraged.
Decreased stress and burnout
Retention means less employee stress. For one, there is familiarity and comfort in the work being done, no matter what the task. For teams, there is instilled trust and confidence that comes with having reliable, experienced, and skilled colleagues to count on.
When employees leave and work is reallocated, the burden on the remaining employees can be considerable. Pressure to perform, despite the departures, can weigh on team members and greatly decrease employee satisfaction.
When the departures are chronic and teams are regularly understaffed, the burdens compound and can lead to further departures. It can become an insidious cycle that is hard to break.
FAQs
Does employee retention matter?
Employee retention has a measured impact on employee morale, performance, and stress. It also can have a major impact on the profitability, efficiency, revenue, and bottom line of the organization. Furthermore, employee retention can greatly affect customer experiences, recruitment efforts, and company reputation.
What’s the best way to retain employees?
Employee retention strategies should be based on careful analysis of retention rates and trends, along with feedback from employees and managers. Strategies should be customized to the unique needs and character of the organization. The best strategies include:
Providing team-building activities
Encouraging work-life balance
Boosting employee engagement
Offering rewards and recognition
Developing managers
Prioritizing flexibility
Assessing employee benefits and other perks
Improving employee onboarding
Offering professional development opportunities
Creating paths for advancement
How much does it cost to bring on a new employee?
The average cost to hire a new employee is $4,000. However, those costs will skyrocket for in-demand employees or leadership roles.
Employee retention is a powerful indicator of how well your employees are feeling about your organization. With high employee retention rates, employers will be able to maintain and improve profits, productivity, revenue, and morale. Organizations will see higher rates of employee engagement, customer satisfaction, and brand reputation.
Organizations with high levels of retention will see staff who remain loyal and positive about their work. They will have a positive workplace culture that attracts other employees and creates a positive climate.
