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Holding current customers is much more cost-effective for businesses than getting a new one. The same goes for employees to thrive in today’s economy.

Hiring new employees every time is not an intelligent strategy – The real ROI comes when you plan to keep those employees. If employers fail to keep their best employees, the employee turnover cycle can affect your organization’s reputation. This article will discuss the cost of retaining employees versus hiring new ones.

How Much Do Companies Spend on Hiring New Employees?

The process of hiring new employees is not easy as it seems. Because hiring the right person can be hefty, which incurs a high cost of recruitment. According to business consultants, the cost of recruitment is divided into three categories:

  • Separation Cost
  • Recruitment Cost
  • Productivity Cost

Separation Cost

It’s an immediate cost, which an employer incurs when an employee resigns or leaves. Whether an employee resigns or retires, the employer has to bear separation costs, including the employee turnover cycle. These include insurance costs, provident funds, reserved benefits, etc.

Recruitment Cost

It’s a cost of the process that an employer incurs for a vacant position. Remember, the longer the hiring process takes, the more expensive the recruitment costs become. These include advertisement cost, internal recruiter, recruiter assistant, interview cost, background check & verification cost, pre-employment test cost, training cost, etc.

Productivity Cost

Compared to separation and recruitment cost, productivity cost is relatively harder to quantify. This is the amount of production loss caused when the position goes unfilled. In addition, the time spent on a new employee to pick up the slack is counted under productivity cost.

According to Investopedia, not all hiring processes cost equal, but companies spend an average of $4,129 per new hire.

How Much Do Companies Spend on Retaining Employees?

The actual cost is unknown, as every company’s data varies as well as their retention methods.

A good manager or business owner understands the importance of retaining employees. Unfortunately, most companies do not strategize on employee retention and hire new employees every time. This incurs additional costs in businesses, leading to a loss in profit.

However, offering the following benefits to your employees lead to employee retention:

  • Introduce a health benefit program
  • Develop a monthly reward program
  • Conduct training on a monthly or quarterly basis
  • Promotional programs for employees
  • Provide a channel for employee feedback
  • Establish a benchmark for employee retention

Final Words

It’s easy to understand that your organization’s top talent may affect other employees’ morale, productivity, and overall budget when they leave. Being a business owner or manager, it’s your first responsibility to strategize the process of employee retention.

Small and mid-size companies can take advantage of EmeryHR’s fractional human resources services. Contact today to learn more.