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3 Facts About Small Business Employee Turnover

Posted: June 24, 2019
Category: Finance, Growth

Employee turnover is often overlooked in small businesses. The process of hiring and firing employees is viewed as a necessity, but turnover causes and effects are not looked at on a granular level. The reasoning behind why an employee departs is often not taken into deep consideration due to a perceived lack of time or resources, but very little thought is given to the amount of time and resources that will be gained by retaining employees longer.

This article begins by looking the true costs of employee turnover and how excessive turnover can begin to destroy a small business. From there, we then dive into looking at what employees really want and how they approach getting it. We end with a look at why employees leave and what employers can do to improve their retention rates.

Interested in employee engagement topics? Check out our related article: 10 Ways to Improve Employee Engagement in Small Businesses

  1. True Cost of Employee Turnover

Employee turnover impacts every part of an organization, from team quality to overhead, and especially morale and customer service. Employee turnover is often thought of as an isolated incident. Employee X is no longer with the company, so we must replace employee X with employee Y. However, this is a wildly inaccurate way of viewing employee turnover. Businesses are made of interconnected webs of individuals, usually in teams, whose functions within the business rely on one another.

When one member of any team within a business departs, there are several costs that are associated with such departure. The most commonly recognized cost is advertising dollars spent to attract quality new replacement candidates. This includes online advertisements, career fairs, and other means through by which the business attempts to attract replacements.

The second cost is onboarding and training. While it’s not commonly thought of as a cost because it’s a necessary function for the operation of the business, onboarding and training costs add up. In addition to this, there is a third cost that is closely related: employee inefficiency. The cost of employee inefficiency is exhibited every time a new employee joins a business and is highest when a more seasoned employee departs. Without proper preparation over longer periods, the teams on which the now departed employees once sat are often burdened with carrying the weight of the former employees.

The fourth cost, which is also closely related, is employee morale. As employees are burdened with more work, they become overworked and employee morale begins to decline. As more and more members of the business depart, and it begins to look more like a revolving door, employee morale begins to plummet. Frequent turnover leaves employees uneasy and questioning their job security.

The fifth cost, which is incrementally reduced by each of the preceding four costs, is reduced customer satisfaction. Customer satisfaction is key in any business. After all, customers are the ones who ultimately pay the bills and provide the profits. As employees leave and replacements are brought in, productivity, product knowledge, and confidence begin to decline. Customers want information and they want it fast. Employee turnover can slow the information gathering and task execution process down to a snail’s pace.

The sixth cost, closely related to the fifth, is customer loyalty. Even the most loyal customers who have started experiencing deviations in the quality of the services they are receiving are likely to jump ship over time.

  1. What Employees Really Want

People agree to become employees for different reasons. One individual might join a business for self-motivated reasons while another takes a purely altruistic approach. Assuming everyone performs the job as agreed upon entering the business, the reasoning behind the decision to join doesn’t matter. What’s important is what these individuals want after joining the business.

First and foremost, employees want to know that they are a valued member of the business. This doesn’t mean bright lights and trumpets are necessary but listening to employees and enabling them to have a unique voice is key.

Second, employees want to know that there’s room for growth within the company. Unless the individual is specifically looking for a short-term position to help bridge the gap between being unemployed and being employed at their next job, growth potential is important. Growth potential comes in many forms, but the most common two are additional responsibilities and increased wages. Enabling employees to grow within your business throughout their careers provides them with a sense of stability, resulting in increased engagement and reduced levels of employee turnover.

Third, employees want to work for a company that they can identify with and one that makes them proud. People are generally good and those who aren’t don’t go around telling others. Generally, employees want to work for an employer who has some sort of volunteer initiative implemented throughout the business. Employees like being provided with the opportunity to give back while doing it on the company’s dime. Volunteering together also enables colleagues to get to know and engage with each other in a less formal way.

  1. How to Retain More Employees

Employees leave for many different reasons. Some employees have found seemingly better opportunities, others feel unappreciated, and still others don’t see growth opportunities within the company by which they are employed. No matter their reasons for leaving, employers can reduce their employee turnover rates by focusing the areas outlined above. By giving employees individual voices, enabling them to grow within the company over time, and showing them that the company cares about giving back, employers will be able to retain their employees for longer periods of time.

Employees want to know that they’re not expendable. In a world where robotic process automation and skilled laborers are flooding the market, employees want to know that there is stability and security in their jobs. Focus on improving your employee engagement rates by implementing the advice mentioned throughout this article and you’ll notice a gradual decline in your turnover rates and an increase in your customer satisfaction and loyalty.