Understanding employee retention risks and implementing strategies to reduce talent attrition rates is a fundamental facet of human capital management ­— and for good reason. The cost of employee turnover is incredibly high, impacting not only operational costs, but also revenue, productivity, company culture, customer experience and more.

Despite the detrimental impact that high turnover can have on an organization, many companies nonetheless fail to prioritize employee retention. Those that do invest in improving it, however, see significant returns across a number of critical areas.

What Is Employee Retention?

Employee retention refers to the strategies and processes an organization develops to keep its top talent and mitigate turnover risks. Employee retention and turnover is a leading workforce management challenge for many organizations and human resources (HR) professionals, creating significant operational costs for employers and compromising their growth and profit.

Average employee turnover rates vary by industry, from less than 20% in public-sector roles to more than 60% in professional services and construction, according to the U.S. Bureau of Labor Statistics. Certain sectors that tend to employ many first-time, part-time, seasonal and student workers — such as retail, restaurants and hospitality ­­— are particularly prone to extreme attrition.

Individuals leave their employers for many reasons, among them: They find a different or better job, they move, they go back to school or they retire. Some are fired or laid off. While all of these are examples of turnover, employee retention focuses on voluntary turnover as opposed to involuntary turnover (e.g., getting fired).

Large U.S. businesses lose at least $1 trillion each year(opens in new tab) due to voluntary employee turnover, much of which exiting workers say their managers or organizations could have prevented.

Why Employee Retention Matters to HR

A comprehensive human capital management strategy includes a well-thought-out plan for retaining valuable employees your organization took time to recruit, onboard and train. It makes sound business sense: The cost to replace an employee can range from one-half to two times(opens in new tab) the employee’s annual salary. Company culture, employee satisfaction and other soft costs add up, too.

Companies that fail to prioritize employee retention clearly pay a steep price. However, those that invest in improving employee retention and addressing turnover risks reap significant rewards. They report sales growth, improved productivity and work quality, as well as higher employee morale.

Employee retention initiatives and related data can most efficiently be managed with a human resources management system (HRMS). The set of HR software applications helps with every step of the employee lifecycle from candidate management to onboarding and employee engagement. The tools will help you understand your turnover rate, and track the progress of any measures you take to address possible issues.

10 Benefits of Employee Retention

Employee retention is not just about minimizing damage to the organization when employees leave. It also offers opportunities to improve company performance across a number of key metrics. The following are 10 ways effective employee retention strategies and processes benefit organizations.

infographic employee retention benefits
  1. Cost Reduction

    Large U.S. employers spend upwards of $1 trillion on finding and recruiting replacement workers annually. Costs include advertising, interviewing and screening. Onboarding expenses, like training and management oversight, also add up.

    Other issues include lost productivity, lower engagement, customer service problems and company culture impact, all of which compounds the cost of turnover.

  2. Morale Improvement

    A revolving door environment can dampen employee morale. Aside from lost connections, employees who remain may have to take on heavier workloads or responsibilities. As a result, their motivation and satisfaction can also nosedive.

    Just as concerning is the contagious nature of turnover. Employees may decide to leave because they notice others are job hunting, talking about quitting or actually leaving the company.

    Organizations with successful employee retention programs can lift employee morale, enable greater connectedness and engagement, and create contagions of positive emotions in the workplace.

  3. Experienced Employees

    One crippling cost of high turnover is the loss of institutional knowledge, skills and relationships — within the organization and with customers and partners — that disappear when an employee exits. The organization also loses the potential value the employee could have delivered, also known as the opportunity cost. When senior employees depart, the loss can impact succession planning as well. These employees — particularly top performers or those with in-demand skills — are often at risk for turnover even in times of high unemployment. Organizations that focus on retaining more senior or experienced employees see significant returns as these professionals are apt to solve complex issues on their own, which benefits the organization.

  4. Recruitment and Training Efficiency

    Replacing an employee carries significant costs. After an organization finds qualified employees and successfully recruits and onboards them, they have to be trained. Should a new hire leave, all that money goes down the drain.

    By focusing on employee retention, recruiting costs can be dramatically reduced. Another consideration is to recruit from within the organization. The cost to train and reskill an employee from within can save an organization tens of thousands of dollars per person.

  5. Increased Productivity

    Persistent turnover causes a host of issues for employers. The most immediate impact is loss of productivity. On average, it can take a new hire one to two years to reach the productivity of an existing employee. In addition, new hires need time to build relationships with co-workers and customers. An understaffed environment also causes problems of its own — among them, employee overtime and burnout, lower work quality and delays.

    Effective employee retention can save an organization from productivity losses. High-retention workplaces tend to employ more engaged workers who, in turn, get more done. Engaged employees are more likely to improve customer relationships, and teams that have had time to coalesce also tend to be more productive.

  6. Better Customer Experience

    Customer experience is a customer’s perception or opinion about their interactions with a business, from their first interaction to post-sale support. These interactions depend on employees whose own experiences can impact how they engage with customers.

    This is where turnover can take a toll. For example, new employees might take longer to get things done, may be less adept at problem-solving and are more prone to customer service mistakes — all of which can damage the customer experience. In turn, customers might share their negative experiences, putting the organization’s reputation at risk. On the other hand, satisfied employees typically have higher morale and capabilities that shine through when working with customers.

  7. Improved Corporate Culture

    The perceptions, preferences and behaviors of people who work at a company form its corporate culture, which plays an indisputable role in recruiting and retaining the right people. When an employee leaves, others will often wonder why and perhaps start to question their own loyalty to the organization. Conversely, when engaged employees who are aligned with an organization’s culture stay, they strengthen the organizational ethos and environment.

  8. Better Employee Experience

    Employee experience is an employee’s perception of their interactions within an organization — from when they first applied for a position to when they leave. It also takes into consideration each person’s relationships with co-workers, managers and customers. A positive employee experience often fuels productivity and fosters more positive customer experiences, which can lead to greater customer loyalty.

    Many factors impacting employee experience are outside HR’s control. However, by focusing on what employees want and keeping more of their best talent on board, organizations can build a better employee experience, which in turn drives retention.

  9. Increased Revenue

    Revenue gains stem from reduced hiring costs, increases in productivity, and the delivery of better customer experiences, among others. Tracking revenue increases from retention policies can be an important HR metric to demonstrate the return on investment of those initiatives.

  10. Improved Employee Engagement and Satisfaction

    A positive employee experience can boost employee engagement, defined as the level of connection and dedication a person has to their role and organization. Engaged employees feel motivated and care about their work and company; they feel they have proverbial skin in the game and are more likely to stay. The level of engagement is closely tied to employee satisfaction and morale, all of which are critical to an organization’s success. An added bonus: Engaged employees often become brand ambassadors who speak positively about their companies across their networks.

    Focusing on employee retention pays dividends across the organization. An effective employee retention strategy is a critical component of comprehensive workforce planning. And human capital management software is a critical tool to help measure employee turnover, as well as aid with efforts to improve attrition rates and track the financial impact from those initiatives.

    Creating a successful employee retention approach takes significant effort, executive oversight and targeted investment, but it pays off for organizations that implement the strategies, tools and processes required to retain their best and brightest talent. Organizations that fail to focus on employee retention and turnover reduction can suffer significant blows not only in terms of the hard costs related to finding, recruiting, onboarding and training replacements, but also in terms of lost productivity and knowledge, impact on customer and employee experiences, and lower morale and weaker corporate culture.

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Frequently Asked Questions

What are the benefits of employee retention?

Building a financially sound organization includes developing structures that keep your best employees around. Companies that do so reap significant rewards, including better corporate performance, higher productivity, better work quality, greater employee satisfaction and better customer experience.

Why is employee turnover a problem?

Employee turnover is a leading workforce management challenge for many organizations, compromising their growth and profit. One estimate places the cost to replace an employee — including recruiting, hiring and training a new worker — as high as 50% to 60% of the lost worker’s salary. Company culture, employee satisfaction and other soft costs add up, too.

What is the meaning of employee retention?

Employee retention refers to the strategies and processes an organization develops to keep its top talent and mitigate turnover risks.

How do you maintain employee retention?

A positive employee experience can boost employee engagement and satisfaction. Employees who feel respected and trusted, are fairly compensated and have the opportunity to use their skills tend to remain with their organizations for the long term.