7 Reasons Why Employee Retention Is Absolutely Vital

Employees using SCRUM methodology Adobe

When you start a new business, you are creating an organisation with a stated purpose or goal: to sell products or services for profit. Often, this requires labour or expertise in a variety of areas and, unless you are running a small sole proprietorship, you will need employees to achieve this.

Indeed, most companies cannot survive without talented and dedicated staff members, and organisations that continuously lose their best people are highly unlikely to grow. This is why retention – the ability of a business to keep their best people for an extended period – is so crucial.

The Importance of Employee Retention

Of course, it is impossible to keep every employee forever, but as a business owner or manager, there are various steps and measures you can adopt to improve workplace satisfaction levels. Your team members might be tempted elsewhere, but you can still try to convince them that their best interests are served by continuing within your organisation. 

It's not just about keeping people happy, either: employee retention should be a key focus for any business that is looking for long term stability and growth. High employee turnover can have a seriously negative impact on your reputation and your ability to attract high-calibre candidates. 

With this in mind, here are seven points that highlight the importance of retaining your employees:

1. It Maintains and Improves Long-Term Productivity

In business, every workplace has its own systems, procedures, and protocols when it comes to getting things done. Employees who are familiar with such a system have a clearer understanding of how things should work.

When you have a high level of employee retention, you can continuously work on improving specific processes to boost overall productivity in your business. It also reduces the chances of costly errors when it comes to dealing with critical operational elements, such as dealing with regular clients, handling accounts receivable, and adhering to compliance laws.

2. A High Turnover Indicates Broader Issues

Conversely, a high turnover rate is usually a sign of significant structural defects in your organisation. It indicates that your subordinates are not happy with the way things are being run, whether due to low salaries, poor workplace conditions, a lack of perks, or even a lack of confidence in the future of the firm.

There can be any number of reasons for high attrition levels in your workforce – and you will need to identify and remedy them. After all, the steps taken by you and your management team to address employee morale and satisfaction will ultimately benefit the organisation itself.

3. Turnover Costs Can Bleed Your Business

Another serious effect of high turnover is the financial hit you will have to take; after all, hiring new workers is a very costly affair. Depending on the post you are trying to fill, talented and skilled workers can be scarce, with a recent Gallup poll suggesting that 44% of businesses struggle to find employees with the right skillsets for their vacancies.

It also means having to sift through a large number of applicants to find suitable candidates, while your organisation is not as productive as long as a post remains vacant. The wider recruitment process takes time and money, too, with leadership expert Bill Conerly claiming that the cost of replacing an employee can be between 50% and 200% of their annual salary, depending on the circumstances.

4. Your Loss Is Often a Boost for the Competition

As already noted, talented workers court a massive demand in the present labour market; organisations are always on the lookout for employees with training and experience in their chosen fields. After all, a salary is not the only thing that an employee gains when they work in your organisation – they also acquire valuable experience and new skills.

Therefore, when you lose a long-term employee, there is every chance that they will be snapped up by one of your competitors. Even in cases where you insist upon the signing of a non-disclosure agreement, ex-employees have valuable insights into your firm's strategies and practices, which could massively benefit your rivals.

5. Employees Are a Valuable Long-Term Investment

The relationship between a business and its employees is essential and, like all relationships, requires time and effort to build. For starters, a new employee needs time to familiarise themself with the way things are done in your organisation. They require onboarding, training, and, in a lot of cases, an element of leeway while they integrate into your culture and your processes.

As alluded to, this costs time and money, and the best way to justify this is to consider it as a long-term investment for your business. Firms with high employee retention rates recoup the costs they have spent on training and developing people by seeing tangible results, while companies that fail to keep people are throwing resources down the drain.

6. Hiring Is Easier If Your Retention Rates Are High

These days, internet and social media can provide a clear window into the inner workings of any business, including its workplace conditions, the level of employee morale, the attitude of management, and even the kinds of salaries and benefits packages on offer. 

Therefore, it is easy for firms with low retention levels to develop a negative reputation. This could act as a potent deterrent for talented workers, resulting in them removing your firm from their list of prospective employers.

This will make your HR department's job much harder, while at the same time increasing the turnover costs. Conversely, if your business has a stellar record on employee satisfaction and retention levels, you will find it much easier to attract the best talent out there. 

7. There Are Knock-On Effects for Your Company's Reputation

Since they are so integral to the overall well-being of your business organisation, employee morale and attitudes can have a considerable impact on how outsiders perceive your firm. When there is high turnover, efficiency and productivity take a hit, which can lead to issues for your partners, vendors, and most importantly, your clients and customers.

Low staff retention can also be seen as a serious red flag by potential investors. If you need fresh funds for expansion, your firm's weakness in such a vital area will surely make things much harder, if not downright impossible. 


There is no set percentage or "mark" that a business needs to attain when it comes to employee retention. For instance, in some sectors, where unskilled labour is used a lot (such as hospitality), there can be high employee turnover with little to no negative consequences for the company.

The key distinction here, though, is the type of employees involved. High skilled workers, mid-level managers and those involved in creative or research tasks can be much harder to acquire and replace.

Therefore, a lot depends on the kind of business that you run. However, in general terms, high employee retention is always preferable because it indicates that your business is doing the right things when it comes to internal management.

Organisations that mistreat their employees don't have much of a positive outlook in the long term. As a business owner, your priority should be on creating a system that benefits all parties concerned as much as possible – a fundamental principle for success in business.

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