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7 Strategic Ways to Increase Employee Retention While Reducing Costs A small upfront investment in key perks, as well as simply taking a sincere interest, pays large dividends in the long term

By Rohit Prakash

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.


Business owners are always looking for ways to reduce costs and boost their bottom line Although it may feel counterintuitive, especially to a small business owner, spending a little more time and money to retain your best employees is one way of saving a lot of both. It has been understood for a long time that employees who love their jobs tend to stick around, which reduces ongoing hiring costs, of course, but happy employees also boost customer loyalty and the bottom line.

If your business experiences any turnover, you already know about the crazy high time investment and increasing difficulty -- of hiring the new right person. Experts estimate that replacement costs from 150 percent to 200 percent of an employee's salary and turnover-related costs were equivalent to more than 12 percent of the average company's pre-tax income.

Another factor that increases the cost is finding someone with in-demand skills. A typical small business, with fewer than 200 employees, goes through an average of 86 applicants before it finds the right person for the job. One Bay Area coffee shop owner told us that on average for the city it costs more than $3,500 to recruit and train a single new staff member. That doesn't include the risk of a regular losing her favorite barista.

So, how can you make sure your employees feel invested in your business? Ensuring that you not only help you retain your employees but reduce other costs at the same time. Funnily enough, the correlation of this is not a coincidence. We spoke to many SMB owners and managers from across the country in the Townsquared community and here is what we learned from those that are doing this successfully.

Build a team atmosphere: Outings and parties can boost morale and happy employees are 12 percent more productive than others. They can also help encourage your employees to better connect with one another -- and feel closer to your business in the process. Sending out weekly, or monthly, staff memos pointing out employee milestones and successes helps your people know their hard work is being recognized.

Find your mission. Research shows that ethical businesses, those that have strong impact missions (think: only serving locally grown produce), are more sustainable. They can make more money and are preferred by customers. They attract more loyal employees, too.

Keep your staff healthy. Gordon Kushnick, owner of healthcare brokerage Essential Benefits in Seattle, said "If you don't already, you should cover health care now." He suggested that buying a group plan can even reduce an owner's individual health care, especially if your workforce is young. In addition, many cities offer a wage credit for business owners who offer employee benefits, reducing the costs involved.

Related: Employee Retention : Why it Remains a Daunting Task at Startups


Offering managers and long-time employees a share of the profits helps keep your best people in your business. Cash sends a strong message that you care and gives staffs reasons to be more driven to help the company succeed. It can also have very practical fiscal reasons.


Different businesses have different processes that they could automate to help employees, reduce human error, and save money. Automating something as simple as time-tracking spreadsheets on average can save 12 hours per employee a month.

Related: Expert Tips For Efficient Employee Retention Strategy

Education perks

Nobody's perfect on their first day. The best managers know that they hire for potential and then focus that energy through training. Small business owners can actually save money on salary by educating less experienced staffers rather than trying to find new team members.

Related: Data Reveal the 7 Factors for Optimal Employee Retention

Be human

Sitting down with your employees on a weekly basis gives them the chance to clear the air and keep people focused on their goals -- not their gripes.

Remember that all of these tips may appear on the surface to cost money and time but keeping your employees happy will help sustain and grow your business in the long-run.

Rohit Prakash

Co-founder of Townsquared and Small Business Champion

Rohit Prakash is co-founder of Townsquared, the only a private, online community for small businesses that ties neighborhood entrepreneurs and mom-and-pop shops together on its hyper-local social network.

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