It’s fairly simple: retaining existing employees is significantly more efficient and less costly than making an external hire. And there’s data to back that up: according to Gallup, the cost of replacing an individual employee can range from one-half to two times the employee’s annual salary, potentially amounting to more than $2 million dollars in cost savings per year for a 100-person company.
The cost of losing an employee
Still not convinced? Let’s go through the math. Replacing a departing employee has hard and soft costs. HR needs to process the departure and severance, advertise and spend time on recruitment, and provide orientation and training for the new hire. Other stakeholders, from the hiring manager to various team members, are also needed to sit in on interviews and provide onboarding—sapping their time while taking them away from their core responsibilities.
Soft costs include the lower productivity of the dissatisfied, outgoing employee, lower productivity from the employees who will have to cover their responsibilities until a replacement is hired, and lower company morale across the organization among employees who may be wondering if they should be looking for external opportunities as well.
Add it all up, and it’s easy to see how Gallup came up with that .5-2x figure. Given an average annual salary of $50,000 and a 25% turnover rate, a 100-person company can expect to spend more than $2 million per year on employee replacement costs. Contrast that with the relatively low cost of training, employee recognition, and other retention programs, it’s a relative bargain to simply give employees the job satisfaction they crave.
The benefit of investing in employee retention
In today’s cost-conscientious world, employee retention is a great way to save money, improve margins, and boost productivity. But worker retention is more than just a statistic—it’s the strategy and tactics that organizations deploy to keep existing employees in the workforce, such as competitive salary and benefits, training, and opportunity for advancement. Making employees feel satisfied in their careers improves morale and fosters loyalty, which, in turn, improves retention and lowers costs. It’s a win for both the employee and the employer.
3 ways to save money with reskilling
Here are three ways your organization can save money by reskilling and retaining the best employees:
1. Recognize professional development efforts
According to SurveyMonkey, 63% of employees who are recognized at work are unlikely to look for a new job. Fortunately, recognition is simple with digital credentials. Your employees will have a chance to learn new skills, and your organization will have verified data it needs to identify, map, and bridge the skills gap.
2. Promote employees who work hard
Promoting from within signals to employees that the organization is committed to their long- and short-term career growth. Employees who have taken the initiative to learn a new skill should be rewarded. According to LinkedIn, employees who are promoted within three years of joining their organizations are 70% more likely to stay. Promoting them means you’ll have an organization of people dedicated to your mission, culture, products, and services—without needing to retrain a new hire.
3. Create a culture of recognition
Lack of recognition is the number one reason employees leave their current roles, according to Achievers. Implementing a digital credentialing program allows employees to own their records of achievement and gives your hiring managers and HR department transparency into existing skills and the employees who can fill a particular need. Celebrate the wins with digital credentials, and recognize those who are dedicated to working hard.
Learn more about the financial and organizational advantages of employee recognition by setting up some time to talk with our team.