Anyone who has ever been in a business knows how hard it is to find and keep the right people. Australia’s employment rate at the end of July 2021 was just 4.6% and continues to trend lower.
In one of the toughest hiring markets we’ve ever seen, it’s essential that business owners do everything they can to make sure their good employees stay with them for as long as possible. Let’s discuss some reasons why retaining employees instead of hiring replacements can be beneficial for your business.
First of all, there are “hard” direct costs associated with terminating an exiting employee as well as hiring a new employee. The average cost of replacing an employee varies between 30% and 150% of their salary according to Harrison HR. You need to factor in the initial hiring costs (either in-house or outsourced), training & induction costs for the new employee and termination administration costs for the exiting employee.
Secondly, when you hire a new employee they will have to learn about your company culture and work environment, this is a “soft” cost as while it doesn’t directly take cash out of your pocket, it does so indirectly. This process might take up the first few months of their employment in which they are not fully productive for your business. This cost can be hard to estimate, but can often have a substantial impact on your bottom line.
Another consideration is that there’s no guarantee that a new hire will add value or stay with your company for a long time. Even if they are an excellent fit, there’s no way to tell how things will be down the track which presents a very real business risk. If things don’t turn out well with your new employee, then you have to go through the process of rehiring all over again.
You’ll also need to consider the opportunity cost of hiring a replacement employee. For instance, what will happen with their current role while you’re recruiting and training them? And how long can they be out of their current role before it starts to affect your customers and ultimately your business operations? This opportunity cost is likely to have the most significant impact on your profits, especially if your business is in a highly competitive industry or region like Australia.
The cost of retaining an existing employee may seem higher than replacing them initially, but over the long term retention strategies like offering an increase in remuneration could turn out to be a much better investment. The bottom line is that retaining good employees rather than replacing them is almost always going to benefit businesses in the long run (and by that I mean years and decades). If you keep finding, maintaining and building on the talent within your organisation then success will follow.
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