You Need Your Employees As Much As They Need You
Nothing can throw off a business like a key employee deciding to leave at an inopportune time. In fact, if any employee is good enough, there might never be an opportune time for them to leave. Which is why it’s extremely important for you to be able to retain employees that perform well.
We’ve discussed at length before how it is important to ensure that your business is system-based and not people-based to help lessen the blow when an employee isn’t able to perform whether due to sickness, circumstances or because they simply leave.
But, even businesses that entirely streamlined and system-based still need good people to help them run.
According to research done by ERE Media, the cost of replacing an entry level employee (regardless of their performance) can be 30-50 percent of an annual salary. Let’s call a timeout and think about that for a second.
When an employee leaves a business, whether they were good at their job or not, to replace them, it’ll cost your business almost half of their salary. And that’s not necessarily including the cost of the new hire’s salary.
The costs stem from the costs related to hiring, interviewing, and training. Then, you factor in costs related to a drop in productivity while you’re shorthanded, perhaps opportunities lost, etc.
Before we’re done with the timeout, let’s hammer one more point in: we’re talking about an entry-level employee. Ready to talk about a senior employee or manager? I hope you’re sitting down.
When a senior level employee, manager or other employee of greater consequence leaves your business, you’re looking at a cost of nearly 400 percent of their annual salary to replace them.
Mid-level and experienced employees cost at least their salary, if not 50 percent more. Long story short: employee turnover is extremely expensive.
If you’re a business with a high turnover rate, meaning employees tend to train and leave rather quickly, you could be wasting a lot of money. By and large, most employees tend to leave their job for one of two reasons: they’re either unhappy with their work, or they aren’t paid well enough.
The same research done by ERE Media found that the average employee will only get about a three percent raise per year, which, when adjusting for inflation, probably only amounts to about a one percent increase each year in additional sending power.
However, when employees start a new job, they can usually expect a more sizable bump in income - usually somewhere between 10-20 percent. Remember how expensive it is to replace an employee?
Most businesses, when someone good leaves, are motivated to bring in a new good employee as quickly as possible. Businesses are more likely to overpay for a new, untrained employee to fill a gap than they are to give a productive and current employee a sizable raise.
Consider this next time you think about your business and the employees. Make sure your business is supportive of its team members, gives them a positive, system-based work environment, the ability to take time off, and the opportunity to have fair salary increases related to production and seniority.
It’s much cheaper to treat your own employees well and keep them than it is to let them leave and need to replace them.