What is Employee Retention and Why is it Important?

Employee retention is an organization’s ability to retain its employees over a certain period of time, measuring how well a company keeps its workforce engaged, satisfied, and motivated to continue growing at that organization — rather than seeking employment elsewhere.

High employee retention usually indicates employees who are content with their jobs and their work environment, while low retention can be the result of various underlying issues.

According to Forbes, the average turnover rate in the U.S. is currently 3.8%, with 2.5% attributed to employee resignation and 1% to layoffs and firings. That number varies by industry, however. For example, the average turnover rate for Leisure and hospitality is 6.1%, Healthcare is 3.4%, Retail is 4.6%, and Transportation is 4.1%.

Though that total average number hasn’t changed much over the past year and is relatively low — an ideal turnover rate is 10% or less — it’s imperative to have a solid employee retention strategy in place to reduce as much turnover as possible, especially since it can cost an organization upwards of 33% of an employee’s salary to replace them.

Let’s explore in more depth why employee retention is important and how you can improve it at your own organization.

Builds Knowledge and Experience

Long-term employees tend to acquire specialized knowledge and experience that are valuable to the organization. Why is employee retention important in this case? Because if they leave, this knowledge is lost, which can also lead to losses of productivity and effectiveness.

Twenty-four percent higher profit margins have been seen by companies that invest in training and development programs for their employees to grow and evolve, yet 76% of employees don’t feel like they’re reaching their full potential.

To combat this discord, companies can offer internal gigs to ensure that employees are continuously honing and improving their skills. With AI-powered technology to support initiatives like this, the organization can quickly and automatically match employees with gigs to help them build knowledge and experience.

Similarly, talent management teams can capitalize on career pathing technology that helps employees discover their next move within the company by showcasing multiple career paths — as well as the specific skills required to get there. With AI, organizations stay one step ahead, proactively developing talent to realize their potential and meet the business's evolving needs.

Finally, making sure you offer learning and development courses — through a Learning Management System (LMS), for example — ensures your employees have opportunities to grow and learn on their own. An LMS can match employees to courses that help enhance their skills, relate to their career path, or provide training for their current role.

Increases Employee Engagement

Employee engagement is key when it comes to retention, and a must-have feature to include in your successful retention plan is a talent marketplace.

A talent marketplace is an AI-powered platform that engages and empowers employees to apply for open internal roles and discover opportunities for learning, development, and connectivity within your organization — all in one place.

Companies that utilize talent marketplaces can:

Foster employee growth through gigs or internal projects
Fill skills gaps by assessing where employees are lacking and recommending appropriate courses of learning
Automatically sync employee demographics — like skills, experience, background, location, interests, etc — and match them with career pathing opportunities

This all feeds into employee retention, because an engaged, passionate, career-driven employee is one who wants to stay at your company to continue growing.

Improves Company Culture

Employees who have been with an organization for a while often play a key role in shaping the company culture. Their familiarity with the organization's values, practices, and history can help maintain a positive and cohesive workplace culture. On the other hand, constant turnover disrupts team and company dynamics, leading to decreased cohesion and collaboration.

There are a couple ways to maintain or increase employee retention by building upon company culture:

1. Set up employees with mentors who can help create those meaningful connections that entice people to stay and grow. With AI-powered smart matchmaking technology, employees are easily connected to a mentor who can help them develop their skills and evolve.

2. Implement Employee Resource Groups (ERGs), which help foster diversity, community, belonging, and engagement in the workplace. When an employee can join a group of like-minded individuals, they more easily build internal networks, have meaningful conversations, and feel better connected to the company as a whole.

High employee retention, backed by these strategies, helps build cohesive teams that can work effectively together and create strong company culture.

From career pathing to mentoring, there are many factors that feed into what employee retention is and why it is important. It’s the foundation of any successful organization where employees feel valued, engaged, and inspired to contribute their best — and it extends far beyond minimizing turnover costs. Employee retention creates vibrant workplace culture, the preservation of knowledge, and the empowerment of teams to reach their fullest potential.

By prioritizing retention, organizations not only secure their future stability but also forge a path toward sustained growth, innovation, and lasting success.

To learn more about why employee retention is important, read our Definitive Guide to Employee Experience.

Maggie Blehar

Maggie is a writer at Phenom, bringing you information on all things talent experience. In addition to writing, she enjoys traveling, painting, cooking, and spending time with her family and friends.