The Careful Balance Between Employee Retention Strategies and Turnover

LaKeisha FlemingBy LaKeisha Fleming
April 18th, 2024 • 5 Minutes

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Almost 50% of HR professionals say that attracting and retaining top employees is their biggest challenge. Benefits, company culture, and growth opportunities play significant roles in a company’s retention rate, as does the recruiting process itself. The prevailing thought has long been that the higher a company’s retention rate, the better the company is doing.

However, your employee retention strategies can be too effective. Maintaining the same lineup of employees for an extended period might not always be the ideal goal.

“Excessively high retention rates might signify stagnation or a lack of innovation within the company. Sometimes, turnover can bring fresh perspectives and ideas, driving growth and adaptation to market changes. Therefore, a balance is crucial, where retention rates aren’t overly inflated, allowing for a healthy influx of new talent and ideas,” explains Matt Little, Director and Owner of Festoon House.

A recruiter’s job is to find and keep key talent and keep the momentum of the business moving forward. Though no company wants to hinder progress, a business doesn’t want a high employee turnover rate either. A revolving door of staff members doesn’t serve the company, the employee, or the recruiter well. The key is striking a compromise. 

We take a look at what it means to walk the line successfully between high retention and the employee movement that a company needs. We also look at how the recruitment process could – and maybe should – operate to have some degree of employee turnover. 

How to Figure Out Retention Rate—and Why it Matters

The KPI for successful employee retention strategies is retention rate. This is the percentage of your staff that continues to work for your company over a length of time. explains how to calculate the retention rate: Take the number of employees at the end of a specified period, divide it by the number you started with, then multiply by 100. For instance, if you started with 100 employees and ended with 80 after five years, your retention rate would be 80%.

Here is the exact formula to calculate employee retention rate:

Retention Rate = (Number of Employees at End / Number of Employees at Start) × 100

“Understanding the retention rate is vital as it provides information about the company’s culture, leadership effectiveness, and employee satisfaction levels. A high retention rate can indicate a positive work environment, strong leadership, and employee engagement, all of which help to increase productivity and success,” states Little. 

“In contrast, a low retention rate may indicate underlying issues such as poor management, a lack of career development opportunities, or employee dissatisfaction, all of which can impede the company’s progress and profitability,” he adds.

Because recruiters are often the first face of a company, their role is critical. Recruiters help inspire confidence in a company and its culture, while at the same time working to get staff who will be a good fit for the business and for the job they’re being hired to do.

“[A recruiter’s] job entails more than just filling positions; they must also identify candidates who are likely to thrive and stay long-term. Understanding this role is critical because recruiting the right talent has a direct impact on employee turnover and, ultimately, the company’s success,” Little notes.

Recruiters have to understand both the benefits and drawbacks of having a high retention rate in a company, and how their job impacts that number.

Who Doesn’t Want a Good Retention Rate?

The Great Game of Business notes that retention rates vary by industry; however, in general, a good goal to shoot for is a retention rate of 90% or higher. There are distinct advantages to having a core group of employees that stick around for a long time. If they all get along and work well together, they become a cohesive unit. Not only does that unity help to build a cooperative environment, but it may also signal a happy workplace culture. The staff has a sense of stability and is likely to be more productive. After all, if the employees have been there for a while, they should be able to do their jobs well, and work efficiently.

In theory, the company should also benefit by saving money, thanks to the ability to cut down on recruiting and hiring costs. TestGorilla notes that recruiting costs can account for up to 40% of a company’s budget.

The prevailing thought is that keeping a large percentage of your employees over a specified length of time shows that people are happy in their jobs. That figure, however, may be deceiving.

When High Retention Rates Aren’t Ideal

“A high retention rate is typically ideal unless the root cause of that high retention is an acceptance of below-average work. Some companies pride themselves on ‘not making hiring mistakes’ which leads to not parting ways with employees that’d it’d be better to,” states Patrick Cahill, President, #twiceasnice Recruiting. “So, externally, it appears as a great ‘high retention’ environment but, internally, you have performance issues and high performers feel increasingly frustrated,” he adds.

There are other drawbacks to having a high retention rate. Employees who stay at the company to draw a paycheck likely don’t have an incentive to do more. If employees truly aren’t satisfied, they can also create a toxic work culture. And a negative environment may drive away new employees. Employees may not only be complacent but may actually resist change and progress. That can cause the reputation of your company to suffer. It may be viewed as archaic and unable or unwilling to keep up with the times.

You have to keep all of this in mind when filling vacancies at your company. Figure out how to have the right balance of new employees and a stable core of old personnel.

Successful Employee Retention Strategies vs Recruiting New Employees

You’re tasked with finding the right employee to hire for the right job, and hopefully keep that person on staff. The goal is to find someone who won’t leave sooner rather than later. But building up a stagnant workforce isn’t the goal either.

“Recruiters balance a smart retention rate by focusing on quality over quantity when sourcing candidates. To ensure alignment with prospective hires, they spend time learning about the company’s culture, values, and long-term goals. Plus, they prioritize candidates who demonstrate not only the required skills and qualifications, but also the potential for long-term growth and contribution to the organization,” Little notes.

But all of this is the same thing you do to find a hire in the first place. What makes this way of recruiting different from what you’ve previously done? The key is to make sure your recruitment practices are in line with the company’s goal. If change is on the horizon, help them bring in someone who can fit the bill. Maybe shake things up in a good way. Search out employees who are ambitious, upwardly mobile, and who are not afraid of change.

“An ideal retention rate strikes a balance between stability and innovation, allowing the company to keep valuable employees while also welcoming new ideas and perspectives,” Little concludes. “This allows for sufficient continuity and expertise within the organization while also allowing for the inflow of new talent and diversity of thought required for growth and adaptation in a dynamic business environment.”  

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