How to improve employee retention and motivation in your small business
Presented by Chase for Business.
Quick insights
- Retaining motivated employees may help small businesses control costs and maintain productivity.
- Common reasons employees leave include limited growth opportunities, lack of recognition and poor work-life balance.
- Tracking your employee retention rate and making targeted improvements may lead to stronger long-term performance.
Retaining valuable employees is a top priority for many small business owners. It is often a costly endeavor to recruit, hire and train new employees. Some small business owners may even be responsible for managing human resources responsibilities themselves. So, understanding how to improve employee retention and motivation may help you build a stronger, more engaged team—as well as more stable and successful business.
This article explores why employee retention matters, what might drive turnover and some practical ways to create a positive workplace that helps keep employees motivated. Let’s dive in.
Why employee retention matters for small businesses
Employee retention refers to how well your business keeps talented team members over time. Losing employees often means spending time and resources to recruit, hire and train replacements. These disruptions have the potential to impact customer relationships, slow down projects and reduce team morale.
When employees stay longer, they can build deeper knowledge of your business and form stronger bonds with teammates. This experience may lead to greater innovation and a more consistent customer experience—all positives for most businesses.
Common reasons employees leave small businesses
Understanding why employees leave may help you address issues before they result in turnover. Some common reasons team members may decide to move on include:
- Limited growth opportunities
- Lack of recognition
- Uncompetitive compensation
- Poor work-life balance
- Challenging management relationships
Knowing why employees typically leave may allow business owners to better analyze their business and the needs of their employees.
Ways to improve employee retention and motivation
There are several strategies that may help small business owners create a workplace where employees want to stay and do their best work. A few common retention strategies include:
Providing competitive pay and benefits
Fair compensation is one baseline for keeping your best people. When employees feel their pay reflects their value and industry standards, they may be less likely to look elsewhere.
While small businesses can't always match corporate salaries, offering a thoughtful mix of pay and perks can demonstrate investment in your team’s well-being. To help implement this, you may consider conducting annual salary reviews using market data to ensure your pay remains competitive. In additional to salary, consider setting up a 401k plan for your business to provide benefits for employees.
Offering profit-sharing or performance-based bonuses that are tied to individual or the business's success are other ways to offer compensation beyond salary increases. Other perks to consider include wellness stipends and commuting allowances.
Offering development and growth opportunities
Top performers typically value professional growth and development opportunities. Providing clear pathways for advancement can help keep your team engaged and motivated.
Growth doesn't always mean a promotion to management. It may also mean mastering new skills or taking on special projects. Fostering this development can happen in many ways, including:
- Creating a mentorship program that pairs junior staff with experienced leaders
- Providing a dedicated "learning budget" for online courses, books or industry conferences
- Allowing employees to cross-train in different areas of the business to broaden their expertise
Cultivating open communication, feedback and transparency
Trust is one key foundation of employee loyalty. A culture where people feel safe sharing ideas and voicing concerns without fear of retaliation directly may help to increase engagement and reduce turnover. Hosting regular company-wide meetings to share business updates, financial health and company goals may provide a way to build trust and communication between leadership and employees.
Additionally, business owners could consider implementing a suggestion system where employees share ideas safely and anonymously. Business owners may find it helpful to publicly review this feedback and explain how and when they will act on it—or transparently, explain why they can't.
Championing work-life balance and managing workloads
Burnout is one leading cause of turnover across industries. A workplace that glorifies overworking may be prone to driving out its best talent. This is why work-life balance is often a key employee satisfaction metric.
Monitoring workloads may help business owners spot when an employee’s task list becomes unmanageable. Business owners may also better support work-life balance by:
- Offering flexible scheduling or remote work options where feasible
- Implementing "core working hours" to give employees flexibility around when they start and finish their day
- Regularly checking in during one-on-ones to ask about current workloads and then reassigning tasks as necessary
Recognizing and rewarding achievements
Regularly acknowledging hard work may validate your employees' efforts and foster a strong sense of belonging. You might consider showing your appreciation by starting team meetings with "shout-outs" where peers can recognize each other's contributions. Other ways to show appreciation can include sending a handwritten thank-you note or offering rewards like a gift card or extra time off.
Fostering positive relationships and team cohesion
When a team feels connected, morale may improve and the daily work experience can become more enjoyable and motivating. You can encourage team cohesion by organizing regular team lunches, company-wide volunteer days or casual social events during work hours.
Conducting proactive “stay interviews”
Stay interviews are one-on-one conversations held with top-performing employees designed to understand what motivates them to stay and what might cause them to leave. Conducting these interviews can be a proactive way to show you care about your team’s day-to-day experience and are committed to making improvements to your employee’s experience.
Reasons why retention rates matter
Employee retention rate is the percentage of employees who stay with a company over a specific period of time, usually measured over a year. Knowing your company’s retention rate provides a number that can be benchmarked overtime and help identify retention trends.
Retention rates vary by sector, but for many businesses a retention rate lower than 80%—meaning 1 in 5 employees' leaves—may be considered a red flag. Industries like retail, food service and hospitality commonly have lower retention rates.
In summary
Employee retention may contribute to the success of small businesses. Keeping your employees engaged and motivated can be achieved in many ways, including by providing competitive pay and benefits, fostering a culture of open communication and offering growth and development opportunities. By understanding the reasons employees leave and taking steps to create a positive work environment, you may improve staff retention and help keep your team motivated.
