You’ve probably heard that it’s cheaper to keep an existing customer than to attract a new one, which can be up to 5 times more expensive than retaining one. If you’re already applying this strategy to sales and marketing in your business, that’s great! And here’s some news: it turns out that the same is also true of employees. It’s far more efficient for your company to keep existing employees than to hire new ones. A high turnover rate can cost you hundreds of thousands of dollars a year, while engaged employees who are with you for the long run can save money and increase productivity.
It can be hard to see the costs of a high employee turnover rate, but in reality, the ripple-on effects can be huge. Multiple reports have estimated a total cost of 1.5-2x that employee’s salary – here’s where that money goes:
1. Recruitment costs
Finding a new employee is no walk in the park. It requires investing in advertising, the selection process, and onboarding. This ordeal can be very expensive, but companies tend to underestimate the cost (usually by 90-95%) because they see it as part of the day to day for Human Resources. However, the HR department is put to better use when helping current employees develop within the company and driving engagement, rather than looking for replacements.
2. Lower productivity
Let’s say your company has invested in the recruiting and selection process, and you have filled the vacancy in record time. That’s the end of the cost of hiring a new employee, right? Not quite.
A new employee can take up to 1-2 years to reach the level of productivity of an existing one. It takes time for them to learn the tasks and processes required for the job, not to mention for them to feel comfortable and confident in it. On the other side of the coin, it takes a while for managers to get used to a new employee too, figuring out their skills and how best to apply them.
3. Existing team is stretched
During the time it takes for your company to find the right candidate and hire them, someone else has to get the job done. Usually, the responsibility and workload fall on the existing team, or to a contractor. This means that either the existing team has to stretch themselves more to meet deadlines and achieve goals – which can result in burnout and low engagement – or you have to hire in temporary talent, which can be costly too.
4. Training costs
The training of a new team member, as with the adjustment period, costs you time and money. Courses, software training, meetings, feedback sessions, double-checking the new employee’s work: while not all of these costs appear on the balance sheet, many take time out of another productive employee’s day.
However, this isn’t the only cost you have to add to the equation. What about the lost cost of the previous employee’s hours of training and the resources invested in them? Over a period of 2-3 years, a company can easily invest 10-20% of an employee’s salary’s worth in training. This is money that walks out the door with the departing employee and can’t be recovered.
5. Cultural impact
When team members see more and more of their colleagues leaving the company, it affects their satisfaction and engagement, and, therefore, their productivity. It’s one of the more intangible costs of employee turnover, but it’s not less impactful.
It’s important therefore to foster an environment of security and satisfaction to help teams thrive. Engaged employees stay with you longer and work harder; this is one of the ultimate money-savers when it comes to running a business.
Employee retention is key to long-term productivity and success, so the longer you can keep employees engaged, the better for your bottom line. A company that hires the right people and invests in their development and engagement is bound to have a positive organisational culture that delivers results. This is why employee engagement should be a priority.