How SMEs can improve employee retention – and why they should care about doing so

How SMEs can improve employee retention – and why they should care about doing so

Polly Kay

Polly Kay
8th July 2019

SMEs often face unique challenges when it comes to achieving long-term employee retention and having a high rate of employee turnover can be very costly for businesses that have to continually seek new prospects, train them, and go through the usual teething troubles along the way.

Poor levels of employee retention can have other large yet less obvious impacts on small businesses too, and in this article I will explain why increasing employee loyalty and staff retention is so important for SMEs.

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What is employee retention, and why is it important?

Before we begin to look at how SMEs can increase employee retention, it is first worthwhile to detail the specifics of what employee retention is, and why it is important.

Employee retention is concerned with how well or poorly any given business manages to keep its employees within their current working roles or the company as a whole, measured over a set period of time. The level of a business’s employee retention is usually calculated as a percentage, measured over a specified timescale.

Often, the term “employee retention” is used to describe the processes and policies that a business has in place to incentivise employees to stay with the company, rather than as an equation detailing a company’s employee retention rates.

However, before you can assess how good your level of employee retention is and determine ways to improve it, you first need to calculate what level of employee retention and turnover your business has at present.

For example, if you were calculating employee retention over a one-year period starting with five employees and three of them were still employed by the company at the end of the year whilst two had moved on or parted ways, that business’s employee retention rate over the year would be 60%.

What constitutes an acceptable level of employee turnover within any given business can be highly variable, and the impact of different levels of employee turnover may be more or less acute for the business in question depending on a range of variables too.

For instance, a small business that only employs a couple of team members will feel the impact of losing a fully trained and competent employee much more acutely than a larger firm that has several employees at the same level able to pick up the slack and ease the transition between transient team members.

Certain roles and industries are also prone to a much higher level of staff turnover and so, lower levels of employee retention than others too, which means that what may be normal or achievable for a business in any given niche in terms of employee retention might not be fully within their control.

Statistics collated by LinkedIn indicate that across all industries, an employee turnover rate of around 10.9% is the norm, but certain roles and positions (usually lower paid and low/unskilled ones) are prone to a much higher level of annual turnover.

For instance, food service, retail, care work, warehouse work and cleaning are industries that often face ongoing problems recruiting and retaining staff, and employee turnover in niches of this type commonly range from 30%-70% annually, or even higher in some cases.

Naturally, any employed position – even a great one that the staff member in question loves and thrives within – will be subject to a certain level of turnover, as people’s plans, lifestyles and situations change over time, and achieving a 100% or near-100% level of employee retention is highly unlikely for most businesses.

Regardless of your business niche, being able to retain good employees for the long term makes good business sense, because the cost of dealing with a high level of employee turnover can make a real dent in any business’s bottom line, particularly for SMEs.

When you factor in the costs in both time and money of advertising for staff, managing the whole recruitment and interviewing process, training new employees and working to develop their skills and abilities – particularly if this involves investing additional time and money in their development – regularly losing employees that are competent and experienced and having to start again from scratch every time with a new prospect can soon become expensive and time-consuming.

By improving your business’s employee retention rates, you can save your business money and manpower hours, improve your business’s performance, and provide a better customer experience too.

How having a high turnover of staff can cost your business money

Many studies have been undertaken within different industries to calculate the financial cost of employee turnover, and in many cases, the total expense incurred by the business can actually exceed the cost of that position’s annual salary.

Research undertaken by Oxford Economics and Unum indicates that the cost of losing an employee with a salary of £25,000 per annum exceeds £30,000, and that businesses spend an average of £5,433 finding and situating every replacement required.

Obviously, these figures are scalable – an SME is unlikely to spend over £5,000 replacing just one lost team member – but SMEs also generally have much tighter finances, and feel financial drains much more acutely than larger companies. A high level of employee turnover for a local business, new start-up or even an established SME can make a significant dent in the business’s finances, and if cash flow is an ongoing issue or the business is already struggling to break even, losing just a single competent employee can even potentially compromise the business’s chances of survival.

Why maintaining employee retention is particularly important for SMEs, and why achieving this can be a challenge

The owners or managers of SMEs tend to work more closely with their employees than those of larger businesses, and this manifests in a number of different ways. First of all, the dynamic between the various personalities within your team and how well they get on and work together is hugely important to the performance of each employee and the business as a whole.

Losing a good employee means not only the need to fill their role, but also going through the teething process with a new hire as they establish themselves within the team and prove their value and suitability – or not, as the case may be.

Employees of SMEs often wear many hats too, and over a period of time, often begin to assist the business in a range of ways that fall outside of the role they were originally hired to perform, as they become more familiar with and invested in the company that employs them.

SMEs also tend to have less of a safety net in terms of other employees available to take up the slack when someone leaves and during the transition whilst a new employee is found and trained, and being minus one staff member if you only had a couple to begin with can provide real problems in terms of covering the shortfall.

Long-term staff are also naturally more productive than new hires, regardless of the competency and potential that any new hire brings to the role itself, and customers of both small and large brands alike value dealing with competent and experienced staff, because the experience that they provide is inherently better.

All businesses, but particularly local ones and SMEs also often benefit from a lot of goodwill on the part of regular customers who have got to know the usual team, preferring to deal with known employees and often, striking up loose personal connections with them (such as knowing their names) that helps to personalise the customer experience and enhance brand perception.

However, SMEs are often somewhat disadvantaged when it comes to their ability to incentivise their employee’s roles, and provide the type of working environments, benefits and conditions that in turn, are apt to make employees stay for the long term.

This is because SMEs may not always be able to compete on pay, benefits and bonuses with larger competitors offering equivalent roles, and in many cases, cannot even guarantee a set number of working hours per week or the availability of long-term, steady work.

Additionally, if your employees pick up on the inherent uncertainty that comes with the journey to establishing an SME during its first few years of trading, a natural sense of self-preservation and concern over the ongoing availability of the work you provide can incentivise even staff that are very happy in their roles to look around for something more stable.

How can SMEs improve employee retention?

As I alluded to earlier on, the exact level of employee retention that any business, industry or niche may be capable of achieving can be highly variable, and depends to some extent on factors outside of the company’s control.

However, even across industries that usually have a relatively high level of staff turnover, being able to bring your own rate of staff turnover down will give you an advantage over the competition, reduce your costs, and help to keep your business running smoothly.

With this in mind, next, I will outline how employers can improve employee retention from the employee’s first day onwards.

Pay, bonuses and benefits

In order to attract good staff that will stick around, you have to be able to pay the going rate for the role itself and ideally, incentivise it by offering a better rate of pay than competitors. This is something that SMEs often struggle with, and if you are not able to offer an equivalent rate or very close to what the pay norms are for your niche and area, you are always likely to struggle to find and keep staff.

However, providing other types of benefits for your team can help to counteract this effect if what you are offering as the complete package is a good deal, which means that you need to compete in other areas when it comes to getting the attention of prospective hires and incentivising them to consider you.

Performance-related bonus packages can help here as long as they are realistic and achievable, and other benefits such as staff discounts, and even trips, small gifts and personal touches let employees know that you value them and care about them, which is often enough to incentivise employee loyalty.

Additionally, being able to provide value to team members by investing in their training, qualifications or career progression is also very important to many applicants seeking a long-term role, and whilst it might at first seem counter-intuitive, investing in your employee’s personal development and transferrable skills can actually help to encourage those employees to stick around.

Working hours and conditions

A problem faced by many SMEs depending on the business’s financial position and projected growth is that they are sometimes unable to promise reliable ongoing work, a set number of hours or a fixed shift pattern to team members, and getting around this can be a real challenge.

Focus on the things that you definitely can offer – such as a minimum number of hours of work per week, even if the shifts are variable and the possibility of more work may be available at times.

It can also be worth letting employees know that as the business grows, you may be able to offer a better package and are committed to doing so, but don’t expect this alone to be enough to convince an applicant to take a punt on your plans paying off.

Additionally, be fair and flexible when it comes to employee breaks, holidays and time off – even if your complete package is not highly competitive, allowing your team members to enjoy a paid (if short) lunch break or a similar small advantage may be enough to give you an edge over the competition.

Incentivising your employee’s day-to-day working role

Keeping team members engaged on a day-to-day basis is important to ensure that they fulfil their roles to the best of their ability, and providing an interesting, engaging and rewarding working environment also goes a long way towards helping to increase employee retention.

Some roles and responsibilities are naturally more interesting and rewarding for employees than others, which makes finding the right fit for each role in the first place so important. However, regardless of what your team does on a day to day basis, there are ways in which you can make their roles more rewarding.

Try to vary the types of tasks your employees perform and stagger repetitive or dull tasks with things that your team actively enjoys doing, and support workers and provide encouragement when undertaking dull or unpleasant tasks. Working alongside of your team at times helps to keep everything moving too, and helps to demonstrate your support for the team – as does of course remembering to say thank you for a job well done, and recognising your staff’s efforts when they go the extra mile.

Employer/employee relationships

Working for an awful boss, whether that be one who is simply unpleasant to deal with or one who is unsupportive or out of touch with their staff is one of the fastest routes to achieving a high level of staff turnover. The importance of the employer/employee relationship should never be overlooked by the owners of SMEs, and building strong working relationships with your whole team should be actively encouraged.

Ensure that your team find you approachable, supportive and helpful and they will come to you with feedback and problems, giving you the chance to resolve them or make improvements that will benefit both the business and the staff.

Also, ensure that the lines of communication between you and your team are always open, and that employees know who to approach with any issues. Additionally, always make sure that this translates well in practice. SME owners are often busy taking care of several things at once, and telling a team member that you don’t have time to discuss something with them that they want to talk about is very easy to do and sometimes unavoidable.

If this does happen, make sure you firm up a future time and date to meet up with the employee in question or allow them to talk to you in the appropriate setting at the right time, and don’t just keep putting things off.

Being proactive about approaching staff and talking to them casually about how things are going and how they feel about things also creates a positive working environment, which once again incentivises staff and helps to keep them in place.

Making employees feel invested in the brand and their role in the company

Encouraging employees to take ownership of their roles and understand the importance of what they do helps to get them invested in your brand and business as a whole, and people who are proud of the company they work for and that are positive about the brand itself tend to stick around for the long-term.
Always recognising and rewarding effort, showing your team how their work pays off and helps the business, and being sure to involve your team members in the decisions that will affect them all goes a long way with employees.

Where possible, enable team members to take ownership of the projects they apply themselves to and follow them through to the end, so that they can see their successes and receive positive feedback for a job well done.
It is also wise to give the appropriate team members the freedom to use their initiative when making decision or choices within their roles, and to develop a sense of ownership and responsibility for the tasks they undertake.

Enthusing your team about what you sell or offer is vital too, both to ensure that this enthusiasm translates to the customer-facing side of the business, and to enable your team to develop a better understanding of your goods or services to support your goals.

Let team members try out and interact with goods and product lines, offer samples, freebies and small gifts where possible, and encourage them to be curious, learn more, and give input once they have done so.

Dealing with problems and gathering employee feedback

Ensure that your staff know what to do if they face a problem or challenge that they can’t handle on their own, and who to go to for help. If an employee does raise an issue, make sure that they feel confident in how you will handle it, and involve them in the process as much as possible.

Give feedback after the event to allow the employee to know how the issue was resolved or mitigated.

Feedback from your team on the ground is something you should actively seek to encourage too, as the people on the front line of your operation are very important in terms of providing insights that can help the business – and incentivises employees to stay in their roles too.

Involving employees in the business in this way and ensuring that they feel valued and important pays dividends in many ways, not least by helping to incentivise staff retention.

Best practices for improving employee retention within your SME

Choosing the right employee and positioning them in the right role can be tricky, and there is often a lot of trial and error involved even for large companies when it comes to getting the right personnel in place – and incentivising them to stay.

To finish off, here are the core takeaways you should keep in mind to improve your employee retention rates.

  • Ensure that your pay and pay-related benefits are fair and competitive, and where possible, add additional incentives such as bonuses and more intangible benefits for employees that do well.
  • If there is the potential for additional career progression, training or upskilling within a role, ensure that team members are told about this at interview, and keep it in mind once they begin to develop within their role too.
  • Engage your employees and ensure that they can discuss any problems or challenges within their roles with you.
  • Try to view things from your employee’s point of view, and take steps to make their day-to-day roles varied and interesting where possible
  • Work to invest your team in your business and brand, and to take ownership of their role in its success – and reward good efforts and staff that go the extra mile for you as appropriate.