How to boost employee retention: 5 strategies for small businesses

If you’re in the process of starting, running, or growing your own business, you probably feel like your to-do list is never-ending. 

Between navigating the legal requirements for starting a small business and figuring out the best pricing strategies, from developing an effective marketing strategy for your small business and looking at how to get clients, to exploring business growth strategies…

In the day-to-day whirlwind of entrepreneurship, you might overlook a critical aspect of your company’s success: employee retention.

But, if you’re thinking about hiring employees in the future or already have a team in place, you need to start focusing on how you’ll retain your staff long-term.

In this guide, we’ll share all the tips and tools you need to foster employee retention — no matter your budget, company type, or team size. Read on to learn:

• What employee retention is

• Why employee retention matters for small business success

• Actionable steps you can take to improve your employee retention rate

What is employee retention?

Once you’ve navigated the challenge of how to hire employees and build an effective team, you want those employees to stay with your company for as long as possible.

And that’s what employee retention is all about: creating an environment in which your employees can thrive, enjoy their work, and feel motivated to contribute to the business’s success on a long-term basis.

There are many different measures and strategies you can use to boost employee retention — focusing first and foremost on how to create a positive working environment for everybody, and then looking at how to motivate employees on an individual level.

We’ll outline some concrete strategies you can implement a bit later on. First, let’s consider why employee retention is so important.

Why employee retention is important

Perhaps you’re looking at how to run a business smoothly and efficiently with just one additional staff member. Maybe you already have a fully-fledged team on board as you focus on how to scale your business and increase your operating cash flow. 

No matter where you’re at with your business, if you’ve got other people working with you or for you, you need to be thinking about employee retention. 

If you don’t actively nurture employee retention, you’ll put your business at risk of high employee turnover — leaving you with the ongoing headache of having to hire and train new employees on a regular basis. 

That’s not only time-consuming and frustrating; it’s also expensive, and a highly ineffective way to spend your small business budget.

But the value of employee retention extends well beyond the financial impact. Employee retention helps to:

Increase efficiency and productivity 

With a well-established team who knows your business inside out, you can ensure optimum efficacy. Instead of focusing on repeatedly hiring and training new staff members, you can put your energy into optimising your business and ensuring smooth operations management.

Boost team morale

If your employees constantly see their teammates leaving the company and are forced to pick up the slack, they’ll soon become demotivated and may also look for employment elsewhere. If they’re part of a happy and motivated team, on the other hand, they’ll also feel more engaged — contributing to a positive environment for all. 

Ensure a consistent and positive customer experience

You might not immediately think of employee retention when looking at how to improve the customer experience, but it certainly has an important role to play. Employee retention helps to provide consistency for your customers — and makes it easier to build a rapport. As such, employee retention can have a big impact on customer loyalty and customer retention. 

Save time and money

The time and financial cost of losing valuable employees is high — as is the cost of recruiting, training, and onboarding new ones. Nurturing employee retention can help to keep your small business expenses down and free up time to focus on more profitable initiatives. 

When you consider all of those benefits together, it’s clear that employee retention is crucial if you want to run a financially viable business. 

How to calculate employee retention rate

Employee retention rate is an important metric used to measure your employee retention efforts. 

A high retention rate indicates that you’re successfully creating an environment where employees want to stay long-term. If your retention rate is low, on the other hand, you may want to review your company culture, employee benefits, and general working conditions. 

Here’s how to calculate employee retention rate for a specific time period:

Let’s say you want to calculate your employee retention rate at the end of Q1. You started Q1 with five employees. Two employees left during that time, which means you’re ending Q1 with a total number of three employees. You’d calculate your retention rate as follows:

• 3 divided by 5 = 0.6

• 0.6 x 100 = an employee retention rate of 60%

That poses the question: What kind of employee retention rate should you be aiming for? 

There’s no universal benchmark for what constitutes a good employee retention rate — it can vary greatly depending on the industry, company size, and the nature of your business. 

In general, the average employee turnover rate in the UK is around 15%. With that in mind, you want to aim for an employee retention rate upwards of 80%. 

However, bear in mind that this one metric alone may not tell the whole story. Perhaps your business is based on one of your side hustle ideas to run a food truck during the summer period, for example, and you hire university students who are on summer break. In that case, you might experience high staff turnover — simply because your employees return to university; not necessarily because you’re bad at employee retention.

Factors that impact employee retention

If you want to improve employee retention, it’s important to consider all the various factors that can impact an employee’s decision to stay or leave. 

Here are some key aspects that can make or break employee retention.

Pay

As a business owner, you’re probably incredibly passionate about what you do — and that’s why you looked at how to become your own boss and maybe even managed to turn one of your hobbies that make money into a full-time business. 

And, while you want your employees to be equally enthusiastic about your mission, it’s important to remember that one of the main reasons they’re working for you is to earn money. 

Competitive pay is therefore a crucial driver of employee retention, ensuring that your employees feel adequately compensated and valued for their work. 

Company benefits

Besides monetary pay, employees also value additional benefits. 

In terms of exactly how benefits affect employee retention, it all depends on the perks you offer. But, broadly speaking, benefits are a great way to boost job satisfaction, promote a healthy work-life balance, foster employee well-being, and generally show your employees that you care about them. 

Benefits might include exclusive staff discounts on your products or services, wellness initiatives such as discounted gym membership, a flexible work policy, snacks and drinks, tickets to events, vouchers for local shops and restaurants, or access to training courses. 

Flexibility and work-life balance

In the modern job market, employees place great value on flexibility and a healthy work-life balance. 

If you’re hiring employees to help get one of your online business ideas off the ground, you’re in a good position to offer flexibility by allowing staff to work from home or choose their hours.

If you’re focusing on brick-and-mortar business opportunities that require in-person presence, you’ll need to find other ways to offer flexibility — such as allowing employees to choose their own shift patterns or swap shifts with co-workers to accommodate last-minute plans, or exploring whether certain administrative tasks can be carried out remotely from home.

Either way, employees want to feel like they have some control over when and how they work. If they don’t, they may look elsewhere for more flexible employment. 

Opportunities for learning and development

If you’re in any doubt about the benefits of training your employees, keep in mind that professional development is a critical factor for employee retention. Many employees look for opportunities to learn and grow, take on new challenges, and acquire new skills.

If your employees feel like there’s nowhere to go within the company, or if they find themselves bored and underchallenged, it’ll be difficult to keep hold of them long-term. 

The overall company culture and environment 

Workplace culture has a great impact on employee retention, and this applies to all types of employment. Whether they’re working online or in-person, part-time or full-time, employees want to feel safe (both physically and psychologically), valued, and secure.

There are many different factors that shape company culture — how you approach feedback, how you communicate with your team, what tools and training you provide, how you prevent burnout, what you do to recognise achievements, and how you go about making sure your employees feel supported and cared for, to name just a few.

Ultimately, if your business is a pleasant place to work, you’ll find employee retention a whole lot easier.

5 employee retention strategies for your small business

Now we know what it is and why it’s so important, let’s consider how to improve employee retention within your organisation. 

1. Invest in onboarding and training

The first step towards employee retention is to make sure that all new hires get off to the best possible start — and that begins with a positive and thorough onboarding experience. 

As soon as an employee joins your company, give them as much insight into your business as you can — including the backstory of how your startup evolved from half-formed small business ideas to the company it is today, how you created a USP for your business, and the steps you took to identify your target market. 

This helps new employees to understand your overall mission and how they can contribute. 

Then spend time showing them the ropes. Talk them through what a typical day at your company looks like, and provide job-specific training — such as how to work with important tools or systems, or explaining the different products or services you offer.

Last but not least, set clear goals and expectations. Just as managing client expectations is crucial for customer satisfaction, managing employee expectations is important for job satisfaction.

Use performance management techniques such as setting SMART goals, providing regular feedback, and encouraging employees to regularly assess their own performance — and communicate those measures transparently. If your employees know exactly what’s expected of them, they’ll feel confident that they can succeed.

2. Create a positive working environment

If you want to foster employee retention, focus on creating a pleasant environment that people enjoy being part of. 

How to create a pleasant physical workspace 

If you’ve got a brick-and-mortar business, make sure the space is comfortable and welcoming. 

Provide a private space where your employees can take breaks away from customers, and offer access to drinks and snacks (think: a good coffee machine, clean mugs, and a well-stocked fridge with milk and cold beverages). 

Another key consideration for the physical workspace: optimising for convenience. If you run a café or diner, for example, you might explore payment options for small businesses that can make your employees’ lives easier — such as enabling tableside payments with portable card readers or setting up scannable QR codes and self-service kiosks. 

How to create a positive company culture 

Employees are more likely to stay with a business if they feel psychologically comfortable and at ease within the team. As an employer, it’s your responsibility to create a safe and welcoming space where employees feel supported, valued, and a sense of belonging.

There are many steps you can take to create a healthy, positive company culture. You might:

• Foster team building through regular company lunches or days out

• Encourage employee feedback (and establish channels where employees can provide feedback anonymously)

• Promote kind, respectful communication among all team members

• Recognise and reward employee milestones and special achievements

And, if you want to make sure that your employees feel valued and respected, pay them fairly and on time. Before you hire, get up to speed on how to do a payroll and figure out the logistical aspects of how to pay employees. It might seem obvious, but late or incorrect paychecks can have a major negative impact on employee morale.

3. Offer competitive pay and attractive perks

Most people work to earn money, and employees expect fair compensation in exchange for their time and expertise.

As a small business owner with limited cash flow, you might assume you’re not in a position to offer competitive pay. But it’s not worth cutting corners here; if you try to save money on employee wages, you risk paying the (much greater) price of employee churn further down the line.

When you started your business, you probably went to great lengths to figure out how to price your product or how to price your service. You can apply a similar approach to employee pay.

First, look at how to do market research for a small business to determine average rates within your industry and location. You’ll also need to factor in the National Minimum Wage across various age groups — check the official Gov.uk website for the most up-to-date information.

Based on your research, establish your own pay bands or benchmarks. This ensures fair and consistent pay throughout your organisation, and provides a clear framework to work from when reviewing employees’ salaries. 

If you own a hair salon, for example, you might create a simple spreadsheet detailing pay bands for various roles and experience levels. Here’s an example of how that might look (based on entirely fictional data):

In addition to competitive pay, try to create an attractive benefits package. Consider what benefits your employees will value most — such as exclusive staff discounts, free tickets to industry events, discounts or vouchers for local restaurants and cafés, and flexible working.

4. Empower your staff to succeed 

Employee retention and job satisfaction go firmly hand-in-hand. If your employees feel equipped to succeed and make an impact, they’ll feel good about coming to work.

Make sure your employees have all the tools they need to fulfil their role effectively and efficiently. This covers everything from technology and physical tools to training, knowledge sharing, and developing soft skills such as communication and problem-solving.

For each employee you hire, consider the main tasks and responsibilities associated with their role. Then list out both the physical and digital tools they need to do their job, as well as what skills and techniques will help them excel.

If you run a customer-facing business, for example, you might train all new hires on what good customer service is and prepare them for how to deal with difficult clients. And, as part of your reputation-building and customer acquisition efforts, you might train staff on how to ask a customer for a review.

If you’re hiring people to work in your busy café or restaurant, you’ll want to provide your team with everything they need to serve customers efficiently. Cash-only businesses might look at streamlining the checkout process by investing in card machines to facilitate cashless payments, for example.

Anything that can make your employees’ lives easier — be it technology, training, or more efficient processes — will help with employee retention.

5. Ensure effective change management 

Change is inevitable in the world of business — and how you handle it can have a major impact on employee retention.

Whether you’re applying for small business grants to take your venture to the next level, looking at how to make extra money by expanding your product portfolio, or considering a new location; make sure you keep your employees in the loop. 

Without clear and transparent communication, any significant changes to your business can breed uncertainty and insecurity among your employees. This is detrimental to team morale, erodes trust, and may have your employees questioning their future at the company. 

But, with effective change management for your small business, you can ensure that any major transitions are as smooth as possible, reduce uncertainty, and create an environment where employees feel supported and valued.

And it’s not just about keeping your employees informed — it’s also about getting them involved. Encourage employee input and feedback on your plans, involve them in the decision-making process, and give them a hand in shaping the company vision.

Not only does this build transparency and trust. It also creates a culture where employees feel invested in the business, committed to its success, and excited about the future and the part they’ll play.

Key takeaways and next steps

Whether you’re making the transition from sole trader and hiring your first employee, or growing your team as one of your low cost business ideas snowballs — the fact that you’re thinking about employee retention is a sure sign that things are going well. 

Focus on employee retention from the very beginning and you will:

• Set your business up for optimal productivity and efficiency

• Build a positive company culture that employees enjoy being a part of 

• Avoid the costly and time-consuming endeavour of regularly hiring and training new employees

• Provide a positive and consistent customer experience

• Prime your business for steady growth, financial stability, and long-term success 

Next steps 

What you do next will depend on where you’re currently at in your hiring journey:

• If you’ve already got a team (or even just one employee), focus first and foremost on improvement and optimisation. With our employee retention strategies in mind, review your current employee retention efforts to assess what’s working and what could be done better. Gather feedback from your employees, consider an anonymous survey to gauge overall job satisfaction, and run a SWOT analysis for your small business to identify strengths and weaknesses.

• If you’re about to hire your first employee(s) or planning to do so in the near future, lay the foundation for a positive employee experience from day one. Referring back to our employee retention strategies, you might start by developing an employee onboarding plan complete with training materials, goals, and general company policies. Then you might focus on creating an internal salary benchmarking doc — or at least conduct some research to get a clear idea of how you’ll approach the topic of employee pay. By thinking about employee retention before hiring, you can ensure that your new team gets off to the best possible start.