Employee Retention: Building a Workplace Where People Want to Stay

By Drea Millinder, SBTDC General Business Counselor, UNC Chapel Hill

What would happen if one of your best employees gave notice they were quitting tomorrow?

For many small businesses, the impact would be immediate. Workloads would shift, customer relationships could be affected, and valuable knowledge might even leave with that employee. Yet while business owners routinely focus on sales, cash flow, marketing, and customer service, employee retention often receives far less attention.

Keeping good employees is not just an HR concern. Retention starts with leadership and the culture leadership sets. Owners and managers set the tone for how employees communicate, solve problems, respond to change, and work together, as well as whether they feel valued, supported, and able to see a future with the business. 

For a small business, where every team member can have a significant impact, creating a workplace where good employees want to stay can become an important competitive advantage. So, what makes employees stay, and what can business owners do to improve retention before a resignation forces them to make a change?

Why Employee Retention Matters

When a good employee leaves, the impact often reaches well beyond the open position itself. Recruiting, interviewing, hiring, and training a replacement all require time and money. Managers and other employees may also spend hours covering role responsibilities, reviewing applications, conducting interviews, and helping a new hire get up to speed.

Those costs can add up quickly. Gallup estimates that replacing an employee can cost approximately 40% of annual salary for a frontline employee, 80% for a technical professional, and around 200% for a manager or leader. For a small business operating with limited time, staff, and resources, repeated turnover can have a noticeable impact on the bottom line.

Other costs are less visible. Turnover can reduce productivity, disrupt customer relationships, drain institutional knowledge, and place additional pressure on remaining employees. When departures become frequent, employees may also begin questioning their own future with the company.

Paying attention to retention before turnover becomes a pattern can help protect productivity, preserve knowledge, support employee morale, and provide greater stability as the business grows.

What Makes Employees Stay?

Compensation is important, but retention is rarely based on compensation alone.

Employees are more likely to stay in workplaces where they feel valued, respected, trusted, and informed. They want to understand what is expected of them, how their work contributes to the organization, and whether leadership follows through on its commitments.

Leadership plays an important role in creating that environment, and small business leaders do not necessarily need complicated employee engagement programs to improve retention. Small shifts in how we show up and engage with our teams is all it takes. Communicating clearly, listening to employees, recognizing good work, addressing concerns consistently, and giving employees the tools and authority they need to do their jobs well can all contribute to a stronger workplace.

Transparency and stability matter, too. When changes are coming, share what you can, as early as you can, and help employees understand the reasoning behind important decisions. Clear processes, defined responsibilities, consistent decision-making, and regular communication can help create a more stable and productive workplace for everyone.

Creating a Workplace Employees Want to Stay In

Improving employee retention does not require changing everything at once. A good place to start is by looking at the employee experience from the first time someone considers joining the company.

Set Realistic Expectations

Retention starts before an employee is hired. Job postings should accurately reflect the responsibilities, schedule, expectations, required skills, and working environment associated with the position. Avoid describing an idealized version of the job that does not match what employees will actually experience.

Take that same approach during interviews. Be clear about both the opportunities and the challenges of the position. The goal is not simply to convince someone to accept the job, but to find someone who understands the role, knows what will be expected, and has an opportunity to succeed in it.

Build a Supportive Onboarding Process

Once an employee joins the company, onboarding should include more than completing paperwork and learning basic procedures. New employees need to understand the business, their responsibilities, the people they will work with, how their success will be measured, and how their work contributes to the larger organization.

Consider creating a 90-day onboarding plan with specific measurable goals and milestones for the employee’s first few days, weeks, and months. Identify who will help answer their questions, schedule regular check-ins, and provide the training, systems, and information the employee needs to be successful. A structured process can help new employees gain confidence, experience success, and become productive more quickly.

Use the Four P’s as a guide to improvement

When evaluating employee retention, small business owners can use four areas as a practical starting point: Process, People, Purpose, and Policy.

• Process: Do employees understand how work gets done? Are responsibilities clear? Are important procedures documented in a centralized location, or does too much knowledge depend on one or two people?
• People: Are the right people in the right roles? Are their skills aligned with their job duties? Do managers communicate effectively? Are employees receiving useful feedback, recognition, training, and opportunities to develop?
• Purpose: Do employees understand why their work matters? Can they connect their daily responsibilities to the company’s customers, goals, and mission?
• Policy: Are workplace expectations clear and applied consistently? Do employees understand policies related to performance, advancement, scheduling, communication, time off, and other important areas?

Because these four areas are interconnected, reviewing all four areas can help business owners identify where improvements may have the greatest impact.

Measure Turnover Instead of Guessing

You cannot improve what you do not understand. Tracking employee turnover gives you a baseline and helps you determine whether your retention efforts are making a difference.

A simple turnover calculation is: Employee Turnover Rate = Number of Employees Who Left ÷ Average Number of Employees × 100

For example, if a business averaged 20 employees during the year and four employees left, its annual turnover rate would be 20%. (4 ÷ 20 x 100 = 20%)

The percentage itself is only a starting point. Look for patterns by department, supervisor, role, or employee tenure. Are employees consistently leaving during their first 90 days? Does one part of the business experience more turnover than another? Tracking these patterns over time can help uncover underlying issues and show whether your retention efforts are working. 

Ask Employees Before They Leave

You do not have to wait until someone resigns to understand how employees feel about their workplace.

Simple, informal stay interviews can help you learn what is working well and where employees may be experiencing challenges. Ask what they enjoy about their role, what causes frustration, what would make their job easier, and what might cause them to consider leaving. Regular one-on-one conversations may provide more useful information than waiting for an annual review.

When employees do leave, exit interviews can provide helpful insight into management, workload, expectations, communication, training and professional development, compensation, advancement opportunities, and workplace culture. Over time, these conversations can reveal patterns that deserve attention.

Most importantly, act on the information you collected. You may not be able to make every change requested, but acknowledging concerns, explaining the reasoning behind decisions, and following through whenever possible helps employees see that their feedback matters.

Make Retention Part of Your Business Strategy

Employee retention deserves the same strategic attention you give to sales, marketing, operations, and financial management. When good employees stay, teams build experience together, customer relationships can become stronger and more consistent, and managers can spend more time running the business instead of repeatedly hiring and training replacements.

It all starts with leadership. Rather than waiting for an unexpected resignation to make retention a priority, focus on building the processes, leadership practices, and workplace environment that give good employees reasons to stay.

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How the SBTDC Can Help

Whether you are experiencing high turnover, developing your leadership team, preparing to hire additional employees, or simply trying to create a stronger workplace, an SBTDC general business counselor can work alongside you to identify priorities and opportunities for improvement. This can include reviewing processes and operations, strengthening leadership practices, clarifying roles and responsibilities, and developing systems that support sustainable growth.

So, think back to the question at the beginning: “What would happen if one of your best employees gave notice tomorrow?”

By building strong processes, regularly checking in with employees, and learning from stay and exit interviews, you can better understand why employees stay, why they leave, and how to respond when turnover happens. An SBTDC general business counselor can help you put those practices in place and build a more intentional approach to employee retention.