Benefits of Employee Retention and Why It Is Important for Businesses
In my previous posts, I've talked about the effects of employee retention on businesses and effective retention strategies for business owners.
I've also talked about effective employee retention strategies for business owners to keep your top talents.
In this article, I will talk about the benefits of employee retention and how important it is for businesses.
One problem that management teams and business owners face from time to time in people management is people leaving your workplace. People are willing to take risks to find a new workplace that makes them more happy and better pay.
Rather than watching people leave, you can take control of your employee experience, help people feel happy and fulfilled at your organization, and reap all the benefits of employee retention.
A lot of companies use different strategies to retain their good performance employees. Retaining employees can offer business owners and companies an array of advantages, including reducing costs associated with new hires and trainings, improving the efficiency and satisfaction of staff members.
Knowing more about the various benefits of keeping employees may help companies to focus on employee retention strategies to improve their retention rates.
We will first talk about why employee retention is important for businesses and then we will talk about benefits of employee retention
What employee retention is important for businesses ?
Talent strategy is important and it's something that your human resource department should pay attention, because it is the foundation for your business growth.
Your company will struggle to succeed and grow without the right talents in the company. That’s why programs like talent management, succession planning, and workforce planning are so critical to success.
Higher employee turnover rate can negatively impact your company’s strategies and growth plans, putting success at risk. As more and more people leave the company, your human resources department function goes into triage mode. They focus on plugging in new talent rather than adequately training and developing long-term employees.
Companies that fail to prioritize employee retention clearly pay a steep price, the cost for replacing an employee is expensive and it can range from one-half to two times the employee’s annual salary. Company culture, employee satisfaction and other soft costs add up, too.
However, those companies that invest in improving employee retention rate and addressing turnover risks reap significant rewards. They report sales growth, improved productivity and work quality, as well as higher employee morale.
Benefits of employee retention
1.Cost reduction
Costs of replacing an employee 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.
Employee replacement costs vary widely depending on the position and the industry. More entry-level jobs requiring less experience have smaller replacement costs. On the other side of the spectrum, executive roles can cost hundreds of thousands of dollars to replace.
A study by the Center for American Progress shows that replacement costs for hourly employees can be 16% of salaries for non-exempt workers and as high as 213% of salaries for exempt employees.
2. Better morale improvement
High employee turnover rate 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 decrease.
Just as concerning is the contagious nature of turnover. Employees may decide to leave because they notice others are searching for new jobs, talking about quitting or actually leaving the company.
Companies with high employee retention rate programs can lift employee morale, enable greater connectedness and engagement, and create contagions of positive emotions in the workplace.
3.Institutional Knowledge
Long-term employees possess a deep understanding of the company's operations, culture, and goals. This institutional knowledge is invaluable and cannot be easily replicated by a new hire.
One crippling cost of high turnover is the loss of institutional knowledge, skills and relationships within the organization and with customers and partners when an employee exits.
When senior employees leave the company, 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 rate.
Companies that focus on retaining more senior or experienced employees see significant returns as these senior employees are able to solve complex issues own their own effectively, which benefits the organization.
4.Improved Corporate culture
Higher employee retention rate can contribute to a stronger, more positive culture. High turnover undermines your culture because people are coming and going constantly. There’s more disruption and less cohesion, which can be draining for people who stick around amid a culture of uncertainty and dysfunction.
Conversely, when engaged employees who are aligned with an organization’s culture stay, they strengthen the organizational ethos and environment. Their choice to grow within the company signals their belief in your mission. They’ll have a greater sense of their value and what they’re capable of accomplishing, reinforcing your larger retention strategy.
5.Higher employee engagement and satisfaction
High employee retention rate can contribute to a robust, stable culture, and can also improve employee engagement.
A positive employee experience can boost employee engagement, engaged employees feel motivated and care about their work and company they are working with; 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 a company’s success.
When more people build long-term careers with your company, they become symbols of the culture of growth. These workers can experiment with different tasks and roles as they find their place within the business. That kind of career mobility increases engagement and drives employee satisfaction.
6.Reduce training costs
High employee turnover rate usually means your human resource department needs to work harder to recruit and train new hires to compensate the people leaving your company, which can be costly.
A stable workforce requires less spending on hiring and training. Instead, you can invest in strategic education and improving skills to help people grow and improve performance within the company. By focusing on employee retention, recruiting costs can be dramatically reduced. Another consideration is to recruit from within the organization, which can reduce significantly reduce the costs associated with new hires and trainings.
7.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, when these employee are happy, engaged, and passionate about what they do, they’ll do more in making a better customer experience.
This improves how customers and clients perceive your organization and can also lead to more revenue.
8.Better Employee Experience
Employee experience is the cumulative result of the daily interactions employees have within a workplace. It encompasses the entire employee lifecycle, from recruitment through onboarding, training, professional development, performance evaluations, promotions, exiting the company.
A positive employee experience often fuels productivity and fosters more positive customer experiences, which can lead to greater customer loyalty. By focusing on what employees want and keeping more of their best talents on board, organizations can build a better employee experience.
9.Increase productivity
The most immediate impact of low employee retention rate is loss of productivity. On average, it can take a new hire one to two years to reach the productivity of an existing employee.
With experienced employees in the workplace, they can perform job faster, more efficient and more effective then new hires because are familiar with the company's processes and systems.
10.Increase Revenue
Retaining good performing employees isn’t just a cost-saving, strategy; it can also improve your revenue. The buildup of institutional knowledge over time makes it easier for long-term employees to navigate the culture and perfect their tasks and processes. Moreover, people generally stay with an organization when they enjoy the work and culture. Happy employees tend to be more invested, engaged, and productive and ultimately boost revenues and profits.
