Did you know that acquiring a new customer is typically about 5x as expensive as retaining an existing customer. Similarly, the same is true when it comes to hiring new employees and retaining current employees. We spend a lot of time talking about hiring right now, but the truth of the matter is that we are missing the point. While hiring is undoubtedly a challenge, it is predominantly a symptom of a much bigger problem that haunts large and small organizations alike – employee retention.
Fortunately, you can dramatically improve employee retention, engagement, and productivity at a fraction of the cost you are currently paying to bandaid the problem.
Most everywhere I go, it’s hard not to see “Help Wanted” signs, and the majority of CEOs I speak with say hiring good people is their #1 challenge right now. However, there’s a bigger problem brewing of which our hiring challenges are but a symptom.
In short, there are two types of hiring.
- The first type is hiring to fill a new position. Finding great people to fill new roles is a high-class problem that I addressed specifically in this article. Hiring for new positions creates new opportunities and is a strong indicator of organizational growth. And this is happening in many companies experiencing record-breaking years that are searching for much-needed help to facilitate that growth.
- The second type of hiring is a whole different animal: hiring to replace a previously filled position. This hiring lacks the innate glamour of growth; it includes the often messy ending of a previous relationship and creates considerable drag on organizational growth. I don’t know about you, but I’ve never heard a CEO brag about how their company was doing so well they had to replace 50 employees this year.
You may be thinking, “Why does this distinction matter? Aren’t you splitting straws?” Perhaps, but consider the following.
- The average cost to hire a new employee is estimated to be around $4,000. Now that is only direct costs and doesn’t consider all the management time spent and opportunities missed during the hiring process. Still, it’s management.
- Compare that to the current estimates of replacing an employee, which range from 50% to 75% of the employee’s annual salary. Considering the average wage of an employee in the US is just north of $50,000, that puts you somewhere between $25,000 to $35,000 per position.
Here’s why it matters. On average, new employees only last about four years before you have to pay an extra $30,000 to replace them.
If that hasn’t sunk in yet, think about this. A medium-sized company with 200 employees should expect to lose about 50 employees and pay $1,500,000 just to hire and onboard enough new employees to replace the ones that left. So they are “hiring” 50 employees, but they haven’t grown at all.
The real problem of hiring is retention. And before you go off on a millennial job-hopping blame-fest, know that this metric has been pretty stable since the boomers entered the workforce decades ago.
But there’s a new fly in the ointment (and it’s not a rainbow puking unicorn). In today’s job market, it is easier than ever to switch jobs. Realistically, for many jobs, especially knowledge work, one can work from nearly anywhere, for just about anyone. A flexible job market is a huge win for employees and employers and is so good for our society in many ways; however, it can also create an even more significant challenge for employers.
So knowing that turnover is likely costing you hundreds of thousands (or millions), what do you do? Fortunately, pay raises aren’t your only tool for keeping top talent. In this series, we are going to unpack five ways you can move your employees within your company and help retain your top talent.
- From “Stuck in a What?” to “Exploring the Why?” with high-quality onboarding and orientation.
- From interminable employment to a mission mindset with fixed-term postings.
- From the peanut gallery to the front of the line with internal position bidding.
- From same-old, same-old to something new with job shadowing & job swaps.
- From a dead-end job to an exciting career with multiple career paths.
Together these five deployment strategies will allow you to keep your best employees happy AND productive while also keeping your organization agile and vibrant no matter how large you get. So stay tuned over the next few weeks as I unpack each one for you!