Every entrepreneur and corporate executive knows that it costs more to make a new customer than it does to keep an existing one. But many are just now beginning to understand that precisely the same principle applies to their workers.

How much, on average, will your company spend to replace an employee who quits? At least 1.5 times the ex-staffer's annual salary, according to William G. Bliss, a Wayne, N.J.-based employment consultant. For top executives, Bliss and other experts say, the search fees and other expenses could add up to five times the cost of the former manager's total compensation package. None of those estimates includes the difficult-to-quantify "soft" costs of employee turnover: reduced productivity, lost knowledge, disrupted customer relationships, project delays, and burnout or decreased morale among remaining workers.

Meanwhile, emerging economic and demographic realities are likely to start making those new hires harder than ever to find. For starters, the supply of available workers is shrinking. Throughout 2006, U.S. unemployment has hovered around 4.7 percent, the lowest rate in five years. Baby Boomers--those 77 million Americans born between 1946 and 1964--will begin reaching retirement age in the next few years; demographic experts say the generations coming up behind them simply don't have the numbers to fill all those vacancies. Meanwhile, demand is likely to keep growing as the recovering U.S. economy generates more new jobs--and ever more fierce competition for people to fill them.

All those factors point to the same conclusion: Smart companies should do everything possible to keep the employees they have.

Where to Start

The first step in reducing or preventing turnover: Understand why workers move on.

Sure, paycheck size is often an issue, but experts say money is just one motivating factor. In one study, 88 percent of nearly 20,000 people who left jobs between 1999 and 2001 cited reasons other than compensation, says Leigh Branham, founder of Keeping the People Inc., an Overland Park, Kansas-based consulting firm specializing in employee retention. Other common drivers--which Branham explores at length in The Seven Hidden Reasons Employees Leave (American Management Association, 2005) range from overwork to lack of opportunity to feeling unnoticed or unappreciated.

If your company has had a wave of departures, take a close look at exit interviews to see whether any such patterns emerge. If so, you may want to launch initiatives addressing them. If not, don't relax just yet. Instead, find out what's on your current employees' minds, what they're talking, thinking and grumbling about. By holding small-group discussion sessions or conducting a confidential employee survey, you may be able to pinpoint and resolve problems now, possibly preventing an exodus later.

Next Steps

If you keep your employees happy, you're more likely to keep them on your payroll. Here are suggestions for accomplishing both goals.

Support work-life balance. Most people want a job and a life; even your best employees will bail if that ratio is wrong. Strive to create an environment that keeps workers engaged and challenged while they're on the clock--and one that demonstrates respect for their time off the job. And remember to set a good example by not working 24/7 yourself.

Allow flexible scheduling. "Flextime" is rapidly moving from buzzword to mandate. When rigid requirements conflict with employees' personal lives and family obligations, they're likely to go elsewhere. Where possible, consider customized arrangements such as job-sharing, telecommuting and split shifts.

Help build careers. Research indicates that employees often leave because they're frustrated by the lack of training and development options. Offer courses to help them improve their skills or reimburse the costs of outside degree and certification programs.

Avoid turf wars. Another common turnover cause: Executives who block employee requests to change jobs, departments or locations. Remind managers that when good employees quit, the whole organization loses. Encourage them to help workers achieve their goals; help them replace vacancies created by in-house transfers.

Recruit in-house. Let existing employees know about all new opportunities rather than having them assume you'll hire from outside. You may find a terrific candidate right under your nose--and a promotion is an ideal way to keep that employee from leaving.

Follow the leaders. Not surprisingly, companies that routinely win those annual "best places to work" awards tend to have admirable employee-retention rates. Read about what they offer; consider whether those perks might apply at your place as well.

Sidebar: Recommended Retention Resources

Following are a few selected resources for companies interested in learning more about battling the looming labor shortage by reducing employee turnover.


Keeping the People Who Keep You in Business: 24 Ways to Hang On to Your Most Valuable Talent, by Leigh Branham (American Management Association, 2000).

Love 'Em or Lose 'Em: Getting Good Employees to Stay, 3rd edition, by Beverly Kaye and Sharon Jordan-Evans (Berrett-Koehler Publishers, 2005).

The 7 Hidden Reasons Employees Leave: How to Recognize the Subtle Signs and Act Before It's Too Late, by Leigh Branham (American Management Association, 2005).

The Workforce Crisis: How to Beat the Coming Shortage of Skills and Talent, by Ken Dychtwald, Tamara J. Erickson and Robert Morison (Harvard Business School Press, 2006).


"Dealing with the Real Reasons People Leave," by Judith A. Ross Harvard Management Update (PDF)

"The Seven Hidden Reasons Employees Leave," by Leigh Branham Executive Update, ASAE & The Center for Association Leadership

Other Resources

Keeping the People Inc. Turnover Cost Calculator
Automatically determine how much any employee's departure really costs your company.

William G. Bliss Turnover Checklist and Cost Calculator
See why employee departures take a toll on company finances.

Great Places to Work Institute
Learn what companies on various "best companies to work for" lists do keep their employees happy.