Holding on to experienced, talented employees is something on which every business should focus. While there are many ways to improve employee retention and reduce turnover, your specific strategies should vary based on the reasons your employees leave.


Employee retention not only saves a company money but also improves morale, results in better customer experiences, boosts productivity and increases innovation.

What Is Employee Retention?

To put it simply, employee retention is simply an organization's ability to keep its employees. It is essentially the opposite of employee turnover, which is when staff members leave for one reason or another. When measured as a percentage, the employee retention rate and employee turnover rate should add up to 100%. For example, the turnover rate for Smith's Pineapple Furnishings over the last two years might be 25%, meaning that 75% of workers stayed in their positions.

While the retention and turnover rates are often given for a certain period of time, if no time period is listed, it should be assumed that this is the rate for the past year. In general, businesses should always be working to reduce employee turnover and increase retention rates. That being said, there will always be some level of turnover due to workers leaving for better positions at other companies, due to personal reasons, etc.

Employee Retention Rates

It's worth recognizing that different positions and industries are subject to different retention rates. An entry-level job that is dangerous and dirty is naturally going to have higher turnover rates than a high-paying professional job even if the entry-level position pays more than average, and the professional position pays less than average. This is why it is important to compare your turnover rates to those for similar positions and similar industries.

For example, in 2017, accommodations and food services had one of the highest turnover rates for any industry, coming in at 72.5%, meaning that only 27.5% of workers in this industry still had the same job after only one year. On the other hand, the finance and insurance industry had a retention rate of 75.6% and a turnover rate of only 24.4%.

So, if a restaurant's owners found that their retention rate was 30% that year, they shouldn't feel that they failed because it wasn't close to that of the finance or insurance professions or even compared to the average turnover rate for all professions. Instead, they should be proud because they had a lower than average turnover rate. Of course, they could still shoot for a higher retention rate if they discovered the reasons employees left their company, which is one of the objectives of an employee retention project report.

The Main Purpose of Retention

The most important purpose of retention is that it will save you money. That's because training and replacing an employee can be shockingly expensive. The specific cost will vary based on the specific position, but one particularly in-depth study found that it costs 16% of a worker's annual salary to replace someone in a high-turnover, low-paying job earning under $30,000 a year. This means that to replace a full-time employee earning $10 an hour, it can cost $3,328 or around two months of his pay.

For mid-range positions, which include the average American worker earning $30,000 to $50,000 a year, it can cost 20% of an employee's average salary. In other words, it would cost $8,000 to replace someone earning $40,000 a year. That's around two and a half months of the employee's salary.

When it comes to replacing highly educated executives, the cost is particularly shocking. In fact, it can cost up to 213% (or more than two years) of a CEO's salary to replace her. In other words, it could cost $213,000 to replace a CEO earning $100,000.

Improved Employee Morale

Improved morale is another major objective of employee retention. Examples of the negative effects a high turnover rate can have on employee morale can be found anywhere there is a high turnover rate. It seems everyone has either worked for or has known someone who has worked for a company that routinely fires its staff members. Because workers are so stressed about whether or not they will lose their jobs, they are often unable to focus on work, causing a drastic decrease in employee productivity.

Beyond the stress of losing their jobs, employees in companies with high turnover rates are also hesitant to make strong connections with their co-workers since they worry that these friendships will be cut short. Because friendships at work are a big contributor to employee happiness, this can also cause a big drop in morale. This is one reason that turnover is still a problem for employee morale even when the turnover problem is related to employees choosing to leave.

Whatever the cause of the drop in morale related to high turnover rates, the result is that workers are also less likely to want to go above and beyond in their duties and will likely just do the bare minimum.

Increased Company Pride

Employees who stay at a company for a long period of time are also more likely to feel a bond with the business and its culture. When the company succeeds due to a project in which the worker took part, he is more likely to feel pride, and his morale will improve. This morale can be infectious, and older employees can even motivate new employees to want to stay a long time, which can start increasing retention as well.

When employees do not stay long enough to feel this sense of connection and pride in the business, morale suffers and affects other employees, including those who have been there for years and those who were only recently hired.

Improved Customer Experiences

Employees with low morale can also cause customers to become dissatisfied. The most obvious cause of this dissatisfaction is due to direct communication between customers and discontented employees who provide poor customer service. Happy and engaged employees are more likely to pass those feelings on to customers when they interact with one another. These employees are more likely to be polite and pleasant as well as to go the extra mile to solve a customer's problems.

In fact, one study found that engaged employees can improve customer relationships enough to improve sales by 20%. Beyond this, having employees who have been helping customers for a longer period of time means you'll have people with more experience. This means they can solve issues faster and can often handle complex problems that new employees would be unable to tackle on their own.

Even employees who do not directly interact with customers can cause customer service problems if they have low morale. That's because someone responsible for manufacturing a product can cut corners or ignore problems because she simply doesn't care, which results in the customer receiving a subpar product.

Increased Employee Productivity

High turnover results in lost productivity related to the position going unfilled and the time it takes for a new employee to get back up to speed. In fact, studies say it can take a new employee one to two years to reach the same level of productivity as the experienced employee he replaced. A lack of relationships and established communication further reduces a new employee's productivity.

There are other losses in productivity as well, including the previously mentioned lost morale that results in reduced productivity. Beyond that, employees who have to take on the responsibilities of an open position until it gets filled will lose productivity both when it comes to completing their own work and in attempting to do the work of a position with which they are not experienced. If they work overtime to handle these extra duties, they are likely to suffer from burnout, which could go on even after a new employee is hired.

More Employee Innovation

In order to come up with new ideas that will improve the products or services of a business or to streamline the workflow processes of a company, an employee must first be familiar with those products, services and workflow. Unfortunately, in companies with high turnover rates, employees may never get sufficiently familiar with these things in order to offer suggestions that will improve things.

By increasing employee retention, your company may end up giving employees the knowledge and experience necessary to come up with innovations that could reduce costs or increase profits.

Employee Retention Research

Once you recognize the importance of employee retention, the next step is to improve your own company's retention rates. In order to do this, you first should do a little research into why employees are leaving your company in the first place.

You can do this through exit interviews, reviewing employee resignation letters or, if workers are leaving without giving notice (a particularly problematic form of turnover), you might even try asking co-workers who knew them. This research is critical because you cannot create a plan to improve employee retention if you do not know why they are leaving.

Improving Employee Retention

Once you know why your employees are leaving, you can begin implementing appropriate employee retention programs. Examples would include a retail shop recognizing that employees are leaving to work at a competitor that pays 50 cents more an hour and offers a 20% discount on merchandise.

To improve employee retention, the shop could start paying employees at least 50 cents more per hour and offering a 30% discount on merchandise. If some of the remaining employees were close friends with others who left for the competitor, the owner might even opt to pay a higher wage to reduce the chance that workers would leave to work at the same store as their friends.

It's important to remember that not everything related to employee turnover relates to money. In fact, 83% of employers say that the main reason they offer benefits is to help retain employees. If your workplace is far away from your employees' homes, or if a lot of staff members are moving out of the county for one reason or another, you might try offering workers the chance to telecommute. If you find that you have a lot of people leaving because they need to take care of their children, you could implement a day care facility in the office if your budget allows for it.

In some extreme cases, you might need to retrain or even terminate employees just to create a positive, healthy work environment. This may be the case if you have overly critical or even abusive managers or if your staff as a whole has a toxic, negative attitude that is drastically harming morale.

Alternatively, if your team is always working overtime and is suffering from burnout, you might need to hire more employees. Ultimately, when it comes to employee retention programs, the important thing is to find out what is causing people to leave and to come up with strategies to remedy the problem.