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Surveys & Engagement

A look at why employee retention is so important

Leapsome Team
A look at why employee retention is so important
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Employee retention is key to making your organization more sustainable, productive, and engaging. And in a challenging economic environment, reducing voluntary employee turnover can greatly impact your company’s resilience.

But why is employee retention so important? First, turnover rates are a major indicator of an organization’s overall health. But even more crucially, turnover rates have far-reaching consequences that can be the difference between your company struggling or thriving.

This article will discuss the benefits of low turnover, some disadvantages of high turnover, and the key drivers of employee retention.

The benefits of employee retention

Employee retention has many benefits that feed into one another. So, once you increase your retention rate, you’ll notice a cumulative effect.

A mind-map-style infographic that showcases a list of ten benefits of employee retention.

1. Lower turnover costs

SHRM estimates it costs US$4700 to replace just one employee because of the time marketing and HR need to invest to find new hires. But this figure doesn’t account for the soft costs associated with hiring and onboarding, especially lost team productivity during training. Experts say replacing an employee could cost up to three or four times their salary in total.

Keeping your turnover rate low helps you avoid these expenses and frees up money in your budget to invest in your people’s development, rewards, and benefits. And because those initiatives are key drivers of employee retention, you may notice they make your turnover rate drop even lower.

2. Closer professional relationships

Employee retention also gives team members time to get to know each other, as long-term staff has more opportunities to build relationships with colleagues. 

Gallup studies repeatedly show employees with close friends in the workplace are much more likely to stay at their jobs because their interpersonal relationships offer professional and emotional support. For example, work friends could vent to each other about juggling homeschooling and work during COVID-19 lockdowns, providing a space for solidarity and reducing stress.

3. More employee expertise

The longer employees stay at your company, the more institutional knowledge they acquire. That means they’re familiar with your clients, projects, internal policies and processes, values, and best practices.

Some institutional knowledge is easy to share. Employees can record information like sales figures or policies in your company’s knowledge base, where it’s easy for everyone to access. But other institutional knowledge takes time to develop and requires extensive communication and training to pass on. And if an experienced employee leaves their position before sharing their knowledge, you’ll lose all their expertise. Even worse, they may take that expertise to your competition and give them an advantage. 

Having long-term employees at your company also benefits colleagues since they act as a knowledge resource. Imagine you’ve got an experienced salesperson on your team who developed a sales strategy that targets your specific customer base. You identify the employee as a top performer, encourage them to stay with the company using pay raises and promotion opportunities, and ask them to teach their strategy to the rest of the team. That quarter, your whole team uses the strategy and makes record-breaking sales.

4. Higher quality customer experience

High employee retention rates allow you to maintain a consistently high standard of customer service. Long-term team members have extensive on-the-job experience and a lot of practice in meeting customer needs.

New employees, on the other hand, may need time post-onboarding to find their footing and require more guidance, even if they have relevant previous experience. It’s part of the onboarding experience, and you can expect customers to forgive occasional hiccups. But if you don’t have more experienced people on your team to help out new hires, you might not be able to train them effectively, leading to more errors and a less satisfactory customer experience.

5. Stronger customer relationships

Even if new employees and experienced team members are performing at the same level, turnover can still affect customer satisfaction. They may develop a rapport with a particular contact and not want to change who they work with. Some customers may even become frustrated if they keep having to adapt to collaborating with new people. 

Low turnover rates mean you can pair customers with the staff members they enjoy working with for longer, and the company can benefit from strong professional relationships. 

When you hire less frequently, it’s also easier to keep your products or services consistent. There are fewer employees to train on meeting customer needs, which, as Art Shaikh points out, is critical to maintaining and enriching your organization’s brand.

“Retaining our marketing talent, for example, has helped us maintain continuity of messaging. Our brand speaks a certain way, and we need to have team members that have developed and speak publicly in the manner our brand does.”

— Art Shaikh, CEO at Digital Will

6. Increased productivity

Low employee turnover is excellent for your organization’s productivity. Experienced staff already have the training and experience necessary to perform their jobs at a high standard. So, if you have a high ratio of seasoned employees, your team will excel at:

  • Completing tasks on or even before their deadlinesÏ
  • Finding the most efficient way to do their work
  • Learning new skills related to their job
  • Adapting to changes
  • Knowing which members of staff to ask for support or feedback

High employee retention also means fewer employment gaps when looking for someone to replace a role. You’re more likely to have adequate staffing for all the tasks your company needs to handle. That means each department will find it easier to meet or exceed its monthly productivity goals. 

7. More profitability

When people work more productively, they’re able to complete more tasks in a sustainable manner and therefore generate more profit. Efficient organizations may end up:

  • Selling more of their products or services
  • Offering better quality products they can charge higher prices for
  • Launching new products and services ahead of the competition
  • Carrying out processes more efficiently 

Similar to employee retention reducing hiring costs, extra profits add more resources to your budget for other valuable initiatives like professional development resources and benefits. Consider recognizing and rewarding your team for smashing financial targets. If you regularly praise your people and thank them for their achievements with bonuses and profit sharing, you may increase employee satisfaction by up to 70%.

8. Healthier company culture

High employee retention can make your company culture more dynamic and resilient. Team members that share your mindset and values strengthen your culture. And the longer they stay with your organization, the more aligned they become with your mission and purpose, and the more they motivate their colleagues to do the same.

Plus, when your retention levels are high, you prove to your team that your company culture is part of an inviting and engaging work environment that keeps people around. 

9. Better teamwork

When you know a group of people well, you have a better idea of who works together effectively. It’s much easier to find great opportunities for collaboration between your employees when you’re dealing with a well-established team. For instance, if you’ve observed that one employee is detail-oriented while another is better at looking at the big picture, consider pairing them up on a project to leverage their complementary strengths.

When welcoming new employees, you might have an initial idea of how they’ll fit into your team. However, assumptions can be misleading, and you won’t know for sure until they settle into their position, so you’ll have to do a bit of experimenting. This may lead to a few missed opportunities, as you won’t always put together the most optimal teams from the get-go.

“Knowing someone’s abilities means I can pair them on a project with someone of different skills or knowledge and get the work done, while also giving each person a learning opportunity via their teammate.”

— Bill Catlette, Partner at
Contented Cows

10. Stronger community reputation

While this shouldn’t be your primary motivation to boost employee retention, having happy employees that stick with your organization certainly makes you look reputable and is a great form of passive company promotion. 

Potential clients, business partners, and job seekers all consider how long people appear to stick with your organization when considering whether to work with or alongside you. They know turnover rate is an important indicator of company health, and it gives them an idea of what collaborating with you would be like.

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The negative impacts of low employee retention

Improving employee retention isn’t just about seizing opportunities. It’s also about minimizing detrimental factors like those we’ve listed here.

1. Disruption of work culture

High employee turnover negatively impacts company culture. When people quit, their team members often speculate why. And if your staff is dissatisfied with some aspects of your company culture, they may wonder if those factors contributed to their former colleagues’ decisions to leave. If too many people resign from their jobs over a short period, other team members may start feeling disconnected from their peers and passively looking for other opportunities.

When employees only leave their positions occasionally, the fact that most people stay will reassure your team. They’ll be more likely to assume employee departures are down to personal decisions if everyone else seems happy where they are. 

2. Lower-than-average performance

High turnover can have multiple negative impacts on productivity. And when combined, they can create a negative loop where poor productivity leads to low job satisfaction and even more employees leaving. The main challenges are:

  • New hires require time to match the productivity of other employees. This varies between industries, but a commonly cited time frame is eight months.
  • While replacing employees, you may not have enough staff to cover all a department’s responsibilities. That means your team likely won’t achieve their normal output levels and might feel pressured to work above their capacity.
  • When you reassign a former employee’s tasks to their team members without taking any existing work off their plate, you risk causing stress and burnout. That might result in extra sick leave down the road, too.

3. Inefficient hiring practices

As mentioned, hiring and onboarding costs can be high. But the expense is worthwhile when hiring top performers who contribute to your organization’s culture and success.

The problem is that your new employees may leave before getting fully acquainted with their position. Surveys indicate that up to 40% of new hires are already actively searching for a new job. But if your new team members leave before they reach their full potential, you’ll end up losing much of your time and resource investment.

Plus, it’s harder to allocate money from your budget to deal with the underlying causes of the high employee turnover when you need to keep spending on hiring and recruitment. For example, you can’t offer more competitive salaries or benefits packages when your turnover expenses remain high.

4. Stress & burnout

When staffing levels are inconsistent, it’s harder to maintain appropriate workloads for your team. And team leaders who are overwhelmed with extra duties are more likely to make mistakes. For instance, they might not realize how little progress a former employee made with a project and assign it to someone who’s nearly at capacity. And when employees overwork, it can cause burnout.

At the moment, burnout is especially rife among HR professionals due to challenges like The Great Resignation. 29% of HR staff say their stress levels increased dramatically in 2022, and 47% say they increased somewhat. Only 4% report a decrease in stress. So, while tackling problems like high turnover, you’re also at increased risk of stress and burnout if you aren’t mindful about delegating and spreading out your workload.

5. Low employee morale

When many staff members leave their positions within a short period, it can negatively impact employee happiness. Even if you shield your team from an overwhelming workload and burnout, the following may still affect them:

  • Constant changes to their team and workflow
  • Losing workplace friends who provide professional and emotional support
  • Less-than-optimal results due to their team rushing, overworking, or having less capacity
  • Disruption to learning and development as trusted mentors leave

6. A higher risk of ‘turnover contagion’

Low employee retention can become endemic within your organization. When large numbers of employees resign from their jobs, they may inspire others to quit. 

Visier reports that professionals are up to 9.1% more likely to resign from their positions in the six months after another team member leaves. That means one in ten people will quit shortly after a resignation, and others may follow suit. Over time, rising turnover rates can turn into mass employee resignations. 

Key drivers of employee retention

Now that we’ve covered the consequences of low and high turnover, let’s look at the main factors that keep employees at your company.

  1. Opportunities for career development — Upskilling your people and helping them develop new skills can boost job satisfaction. So, prioritizing employee development could help you improve retention.

  2. Fair compensation — A survey by Hays indicated that higher salaries are the key driver behind retention. Look at your aims of compensation to find the best ways to attract and keep employees.

  3. Good leadership 56% of employees quit their jobs because of poor relationships with their managers. So, team leads who prioritize improving their communication and management skills could greatly increase retention.

  4. Recognition and respect — Employees crave acknowledgment. When companies have an effective employee recognition program, their people are 56% less likely to look for other work.

  5. Comprehensive benefits — As 19% of employees say they’d like better benefits, you can improve retention by offering perks like extra paid time off (PTO) and stock options.

  6. More flexible working hours — Some staff have to quit their jobs because of problems with childcare arrangements, work-life balance, or commutes. Help people stay at your company by letting them work from home or choose their hours.

  7. Promotion opportunities — Career advancement opportunities are the second biggest driver of employee retention — provided they’re handled correctly. Consider how to manage successful internal promotions to create a fair, transparent promotion process.

  8. Engagement — One of the most impactful employee retention strategies is boosting engagement levels. Engaged employees are more productive, more connected to their company culture, and more likely to stay. And for companies on a budget, tackling engagement is also one of the most cost-effective strategies. Compare employee engagement theories to find a system that works best for you.
Photo of a group of employees around a desk focusing on their work.

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Prioritize retention & engagement with Leapsome

Employee retention is critical to organizational success. Keeping your turnover rate low strengthens employee and customer relationships, boosts productivity, and makes you more profitable. 

But because many factors play into retention, HR managers may not know which area to target first.

Leapsome is an employee management platform that combines learning, performance, engagement, and rewards to offer you a holistic approach to retention. Our Surveys module lets you uncover what motivates your people, while our Learning module provides a flexible framework for all your development plans, so you can nurture your people’s growth. Our Reviews module allows you to monitor employee productivity, uncover issues, and find solutions before they escalate. And all these modules are linked to share essential data across the platform.

💪 Want a strong foundation for your retention strategies?

Leapsome’s platform provides frameworks for the top three retention drivers: compensation, development, and promotions.

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Written By

Leapsome Team

Written by the team at Leapsome — the all-in-one people enablement platform for driving employee engagement, performance, and learning.
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