(adsbygoogle = window.adsbygoogle || []).push({});

Here Is Why is Employee Retention Is So Important to a Company

Why is Employee Retention Important?

No matter how brilliant your business strategy may be, your company will only go as far as your team can take you. That’s why it’s crucial to retain good employees. The best way to achieve this is to employ as many applicable employee retention tactics as possible. This strategy not only incentivizes your best employees to stay but also motivates new hires to strive for greater achievements. However, many business owners do not prioritize the practices that help retain their top talent.

Employee retention is a core component of sustainable growth. But why is holding onto high-performing employees so critical? This article will delve into the vital role that employee retention plays in a business’s long-term success. We’ll also discuss its impact on morale, productivity, and customer satisfaction, and how it ultimately affects the bottom line.

What is Employee Retention?

Employee retention refers to the business strategy of retaining your company’s top talent and discouraging turnover. This is achieved in numerous ways, including creating a positive workplace culture and offering certain incentives.

The central idea behind employee retention efforts posits that by making your company a great place to work, you won’t have to worry about competitors poaching your best employees.

A straightforward yet widely used method to calculate employee retention is the Employee Retention Rate (ERR) formula. Here’s how it’s calculated:

  1. Determine the number of employees at the start of the period (E_start).
  2. Determine the number of employees at the end of the period (E_end).
  3. Subtract the number of new employees added during that period (E_new) from the number of employees at the end of the period.
  4. Divide this number by the number of employees at the start of the period.
  5. Multiply the result by 100 to get a percentage.

The formula is as follows: Employee Retention Rate (%) = [(E_end – E_new) / E_start] * 100

For instance, if a company starts the year with 100 employees (E_start), hires 10 new employees (E_new), and ends the year with 95 employees (E_end), the retention rate would be: [(95 – 10) / 100] * 100 = 85%.

This result indicates that the company retained 85% of its workforce over the year.

While the employee retention rate is a helpful metric, it doesn’t provide the full picture. To get a comprehensive view of employee retention, companies should consider many other factors, such as reasons for departures and length of employment before departure. Regular employee surveys, exit interviews, and engagement programs can all help to better understand employee retention.


Why Is Employee Retention So Important?

Companies that struggle with employee retention are susceptible to a multitude of problems, including decreased revenue and reduced productivity. When employees feel undervalued or unhappy at work, they’re more likely to look for opportunities elsewhere, even if their skills are better suited to your business.

Job-hopping is becoming increasingly frequent with each new generation, particularly among millennials. Studies show that about 51% of American employees are actively seeking better opportunities than their current positions. If you don’t focus on an employee retention strategy, those employees could very well be yours.

Fortunately, improving employee retention is a process that can be started at any time. It’s never too late to create a workplace that your employees love.


Workplace Culture

Employee retention and workplace culture are inextricably linked; each affects the other in countless ways, and the success of one hinges on the success of the other. If your company’s workplace culture causes stress for your employees, they’re at risk for burnout, leading to a higher turnover rate.

Improving employee retention requires a thorough examination of your company’s workplace culture. For an unbiased assessment, consider taking anonymous feedback from your employees.

Ideally, your workplace culture should reflect your brand’s core values and place value on the labor your employees provide. In the long run, allocating more paid time off (PTO) and providing ample break time can save your business more money than constantly replacing and training new employees.

Remember the saying, “Happy wife, happy life”? You can apply the same principle to your employees. When your employees feel valued and satisfied, your business will thrive in response.


Company Reputation

If your company has a high turnover rate, your customers will likely notice right away. They’ll realize that each encounter with your company involves different people, which can affect your brand’s image. You don’t want to be known as a company that just cycles employees in and out, as this suggests that your brand doesn’t value quality service.

High turnover rates won’t only be noticed by your customers – your other employees, even the ones that stay, will also pick up on these changes. Employees noticing high turnover might feel less secure in their position, leading them to seek other opportunities, thus perpetuating the cycle.

Potential employees who could be perfect for your business might turn down job opportunities if they notice high turnover within your company. You could miss out on potentially incredible, game-changing employees simply because they’ve inferred that their work will go unappreciated.


Your Business’s Bottom Line

Losing an employee, especially an experienced, long-term one, can cost your company much more than you think. Studies show that every time a business replaces an employee, it can cost anywhere from six to nine months of that worker’s salary. For example, if that employee made $60,000 a year, that could mean a loss of $30,000-$45,000. This amount gets even more intimidating when considering multiple employees.

Losing your top talent not only impacts your bottom line but also makes it harder to maintain a high-quality output. Disappointing your customers or performing inconsistently is never a sound business practice.

Additionally, the longer your employees happily stay with your company, the better expertise they develop in their respective fields. Long-term employees know the ropes and can mentor other employees, raising the overall work quality. Familiar with their work, these employees, when they feel rewarded and valued, are likely to perform better and better.


Improving Employee Retention

There are several strategies you can employ to ensure that your workers feel valued and respected. Doing so can significantly improve overall employee retention.


1. Provide Growth Opportunities

Offering advancement opportunities can be a game-changer for employee retention, especially among your top talent. Here’s a surprising statistic: 86% of American workers agree that they would change jobs if a new company provided them with ample professional development opportunities.

Losing top-performing employees is indicative of a larger problem. To maintain the interest and passion of your best employees, you need to encourage them to consistently reach new heights. Challenge them by offering learning opportunities that can, in turn, make them more valuable assets to your company.

2. Embrace Teamwork

Improving workplace culture is a large, ongoing project. However, organizing team-oriented meetings and brainstorming sessions can make employees feel included and empowered to voice their ideas.

Team-building exercises can break up the monotony of daily tasks while also fostering important employee bonds. When employees associate their workplace with cooperation and socialization, it improves their morale and productivity.

3. Tenure Recognition

One great way to show appreciation for your most loyal employees is to implement rewards for tenure. This strategy benefits not only long-term employees but also their newer counterparts. Long-time employees are recognized for their work and years of devotion to your company, while new hires are motivated to achieve that same recognition someday.

4. Great Employees Make a Great Business

Good employees are hard time to find sometimes. That is why when you find them, you need to find a way to keep them. 

The best thing you can do to improve employee retention, above everything else, is to treat your current employees exceedingly well. Competitors spend an absurd amount of time seeking qualified candidates to fill open positions. By creating a terrific work environment, you actually get the upper hand on the hiring process.


When your business is a great place to work, qualified, hard-working candidates flock to you instead of the other way around. Better yet, you get to retain your top talent and watch your business bloom into its true potential.

Ari Bratsis
Team Writer: Ari is a writer, blogger and small business owner based in Washington state.

Like this article? Get updates by email and get our eBook for FREE

Subscribe and Get Updates!


Invalid email address
Give it a try. You can unsubscribe at any time.

Article Tags:
· · · · · ·
Article Categories:
Find Your Way · Grow Your Business · Leading Your Team · Productivity

Team Writer: Ari is a writer, blogger and small business owner based in Washington state.

Recent Posts