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4 Ways Retention Rate Impacts Your Bottom Line

The retention rate of employees can make or break a business’s bottom line. It’s natural that employees will leave a business over time. Life happens. Career aspirations change. Retirement comes. Those are things you as a business can’t control. However, there are situations where employees leave because of the goings-on in the business—employees don’t feel like the company cares about their growth, the benefits aren’t great, the work-life balance is tough to achieve.

This sort of voluntary turnover is what affects a company’s bottom line. We know 100% retention is not realistic. But the name of the game is trying to get that number as close to 100% as possible. A higher retention rate—and thus a lower turnover rate—reflects a workplace where employees feel valued. It can also reflect positively on a company’s balance sheet.

Here are four ways a company’s retention rate affects their bottom line:

1. Cost of Hiring.

Hiring an employee costs both time and money.

The average time to hire is right around two months, and it’s common for it to take up to six months’ time to find a new fit. A couple of hours per week seeking the right candidate over a six-month period adds up! The Society for Human Resource Management also says it can cost around $4,600 per hire simply in advertising costs and time dedicated to filling the role.

All in all, it can take an average of six-to-nine months’ salary of an employee’s role to hire and train someone new, meaning for a $50,000 role, it could cost you between $25,000 and $37,500 to hire a backfill and get them up to speed in their new role. That’s a lot of money spent on sourcing and onboarding.

2. Cost of Replacement Hires.

Often in the case of an employee voluntarily leaving a company, that employee was critical to the business, and the company will need to find a replacement. The cost to replace someone on your staff is anywhere between one-half and two times their salary. If your retention rate raised from 70% to 80%, that would be 10% less employees you’d have to pay to replace. Blow that up to an organization with hundreds or thousands of employees, and that would be millions of dollars in savings.

3. Knowledge Flight.

When employees leave, they take their expertise and organizational knowledge with them. The person who replaces them likely won’t have that. In losing the expertise an employee contributes, a company loses out on revenue-generating ideas and skills that drive business growth.

Organizational knowledge includes knowing where to find things relating to operations within a company—not all of these processes are documented. When an employee leaves without documenting this knowledge, it can set an organization back in the time and money it takes to learn these processes someone was already doing.

4. Loss of Productivity.

As one employee leaves and another starts, there’s a natural gap in productivity. Some of this time is necessary. A great onboarding experience often correlates to an employee staying within an organization longer. However, if you can prevent the stretch of lost productivity by having the original employee stay within your organization, you can save you and your business hundreds of hours and thousands of dollars worth of productivity.

Retention Starts From the Inside.

The root of employee retention lies within your culture and your investment in the employees who currently work for you. A 2023 Gallup survey that half of employees are open to leaving their current organization! Two-thirds of respondents said their primary reason for leaving were overall engagement in the work and work-life balance/wellbeing. 

The good news is attrition can be combatted. Investments in your employees—whether through a great onboarding experience, upskilling programs, wellness benefits, better healthcare coverage, or working with them to create better work-life balance—can help retain employees and protect your bottom line.

We know transforming parts of your organization—or the whole thing—can be tough. But Evergreen has the experience in building and managing teams from the ground up with retention and culture at the forefront. Let us know where your organization has gaps, and we’ll reach out to discuss how we can grow forward together.