Table of Contents
Takeaways
- Employee retention is an indicator of stability and job satisfaction.
- Constant turnover affects costs, productivity, knowledge retention, and customer satisfaction.
- Your employee retention rate lets you benchmark your team against industry standards.
- Positive, employee-centric work environments improve retention numbers.
What Is Employee Retention?
Employee retention refers to an organization’s ability to keep its employees over a period of time. High team retention rates are a strong indicator of the company’s workforce stability, while low retention rates suggest costly and disruptive employee departures.
Onboarding and beyond
Here are some of the key factors that heavily influence an employee to stay with their company:
- positive and inclusive company culture
- competitive pay and benefits packages
- opportunities for career advancement
- flexible work-life balance
Employees are much more motivated to remain in a work environment where they feel valued and satisfied with their role. Plus, a 2022 study by the National Institute of Health indicated that a positive work environment has the power to improve someone’s commitment level and, therefore, employee retention.
What Makes Employee Retention Important?
Businesses with frequent turnover are often seen as unstable, but the impact of keeping or losing employees goes even deeper. Team retention affects a business’s bottom line, productivity among staff, reputation with clients, and more. Retention affects your bottom line.
Cost Efficiency
One of the most direct consequences of high turnover is the associated cost. Recruiting, hiring, and training a new employee is a major investment. According to some estimates, replacing an employee can cost up to twice their annual salary when factoring in recruiting costs, lost productivity, and training expenses.
Productivity
Stable workforces tend to be more productive and efficient than those with disruptive turnover. When employees leave, it usually leaves a knowledge gap that remaining employees must try to fill, leading to stress, lost time, and burnout. It takes new hires time before they reach the same level of productivity as previous employees, impacting output even more.
Knowledge Retention
Employees develop valuable institutional knowledge over time that paves the way for smooth operations. This knowledge can include company-specific processes, customer relationships, or industry insights. High team retention rates keep expertise inside company doors and provide a competitive edge.
Customer Satisfaction
Long-term employees tend to develop strong relationships with customers and outside businesses like vendors. Consistency in customer service leads to higher satisfaction and loyalty, which are key to a company’s success. Frequent staff changes usually create a decline in service quality which negatively impacts customer relationships.
How to Calculate Your Employee Retention Rate
Calculating your employee retention rate is the first step toward creating your own employee retention program. The insights you collect show how well your company is performing compared to competitors and the current employment climate—and help determine whether you need to make internal changes.
Step-By-Step Guide to Calculating Employee Retention Rate
- Choose a time frame for which you want to calculate your retention rate (e.g. annually, quarterly).
- Identify the number of employees present at the beginning of the selected time period.
- Identify how many of those original employees remain employed with your company at the end of the time period.
- Use the following formula to calculate your retention rate:
Employee Retention Rate = (Number of employees at end of period / Number of employees at start of period) x 100
For example, if you start the year with 100 employees and by the end of the year 85 of those original employees are still with the company, your retention rate would be:
Retention Rate = (85 / 100) x 100 = 85%
Eight Strategies to Improve Your Employee Retention Rates
In today’s competitive job market, companies are adopting employee retention strategies to create a healthier workplace that meets the needs of their team. Recent years have seen an upheaval in workplace expectations. The rise of “quiet quitting” reflects the growing demand for environments where employees feel truly valued.
By developing a strong employee experience strategy that focuses on communication, work-life balance, and support, businesses can build a culture that fosters loyalty and long-term growth. These eight strategies will help you shape a positive work climate where employees thrive and stick around.
1. Start Strong with Organized Onboarding
Onboarding goes beyond orientation day, setting the tone for a new employee’s entire experience with the company. It involves introducing the company culture, offering necessary training, and building team relationships. Tools like DISC+ assessments can provide valuable insights into what motivates new hires to succeed. A strong start gives employees the confidence to commit to the role and stay with the company long-term.
2. Nurture a Positive Work Environment
A positive work environment is built on open communication, team collaboration, and an atmosphere of trust and respect. Healthy company cultures prioritize individual and team well-being, fostering a supportive space where employees feel valued. This reduces the likelihood of staff seeking opportunities elsewhere and helps create a more engaged, loyal workforce.
3. Offer Competitive Compensation and Benefits
Pay and perks are among the top reasons people stay loyal to their jobs. To boost your company’s retention rate, regularly review your salary structures to keep them aligned with industry standards and research competitive benefits such as health insurance, retirement plans, wellness programs, etc.
4. Regularly Provide Feedback on Performance
Regular feedback sessions where employees can voice concerns and share experiences are an excellent way to maintain communication between staff and management. These sessions help employees feel heard and provide valuable insights into areas they can improve. Tools such as employee performance review checklists help address any issues raised and prevent small problems from escalating into reasons for departures.
5. Focus on Your Employees’ Career Progression
Career progression plays a crucial role in employee retention today. When employees see a clear path for growth within a company, they’re far more likely to stay long-term. According to the Harvard Business Review, 65% of employees are considering changing workplace roles, but only a third are aware of internal job openings. This creates an opportunity for companies to guide their employees toward internal advancement, helping boost retention and morale.
6. Encourage a Healthy Work-Life Balance
It’s getting harder for people to maintain a healthy work-life balance in our fast-paced culture. Companies that encourage employees to take time off, manage workloads, and avoid burnout generally have more satisfied employees who feel like they’re prioritized.
7. Offer Flexible Working Arrangements
Flexible work arrangements, such as remote work and flexible hours, are becoming a big factor in managing work-life balance and employee retention. More and more companies are offering these options and are seeing a positive effect in employee productivity and loyalty.
8. Recognize Employees for a Job Well Done
Recognition goes a long way in making employees feel appreciated and lessens the chances of them seeking validation elsewhere. Whether through bonuses, awards, or simple acknowledgments, showing both public and private appreciation for hard work motivates employees to continue performing at their best.
The Pros and Cons of High Employee Retention Rates
You may think that employee retention is a great thing 100% of the time. Normally, yes, keeping your retention rates as high as possible leads to reduced hiring costs and better business outcomes. But are there instances when keeping all hands on deck isn’t ideal?
Pros
- Cost savings: Recruitment, hiring, and onboarding are major expenses when bringing on new hires, so retaining current employees saves companies large costs and valuable time upfront.
- Institutional knowledge: Employees gain important company knowledge over time in operations, customer relationships, and industry insights that can be difficult to replace.
- Morale and productivity: Low turnover boosts team morale, leading to positive outcomes, and experienced staff often perform at a higher level than new hires.
- Customer relationships: Clients feel more secure when working with a company they deem stable, and building long-term relationships with steady employees brings a sense of comfort to both parties.
Cons
- Resistance to change: Employees who have been with their company for a long time may become resistant to change or advancements.
- Fewer fresh perspectives: New hires bring in fresh ideas and can be a springboard for company growth.
- Increased compensation costs: The longer an employee stays with a company, the more raises and promotions are expected, which can become a financial burden if there is not also an upward trajectory in productivity.
- Underperforming employees: Long-term employees may become complacent over time and decrease job performance, which can become a drain on company resources.
Wize Words
Maintaining a strong employee retention program is essential to running a successful business. While these strategies aren’t a one-size-fits-all solution, focusing on your workforce helps create a supportive environment where employees are motivated to stay and grow.
Author
Share
See How It Works