How much should you be spending on keeping your employee? You’ve probably heard how it’s much less costly to retain good employees than it is to hire new ones.
This is true. When an employee leaves, it can cost you anywhere from 50% to 200% of their annual salary to fill the gap. As we’ve reported previously, in our guide to surprising employee retention stats, turnover costs employers roughly 33% of an employee’s annual salary, and U.S. businesses lose about $1 trillion annually due to preventable turnover.
That said, you likely have some budget constraints, and no one expects you to exhaust your entire budget on employee retention.
So, just how much should you invest, and where exactly should that money go to make the most significant impact? Let’s break it down.
The Hidden Costs of Employee Turnover
Replacing a departing employee is rarely ever as simple as just replacing one person with another. In reality, every departure sets off a ripple effect of costs that are often underestimated. Here are some of the significant costs you can expect to incur in replacing departing staff:
- Admin Costs
First, there’s the administrative cost of recruitment. Posting jobs on job networks, screening resumes, conducting interviews, and running background checks can all incur significant costs, whether these tasks are handled by HR staff or outsourced to external recruiters.
- Training and Onboarding
You’ll also need to consider the costs of training and onboarding. New hires will almost always need a few weeks or months to get up to speed, during which they require extra guidance from a training provider, managers and teammates who are already juggling their own workloads.
- Productivity Losses
Productivity losses are another hidden drain. Departing employees often leave behind unfinished projects, institutional knowledge, and customer relationships that can’t be replaced overnight.
Meanwhile, their coworkers may face heavier workloads until a replacement is fully integrated, which can lead to burnout and more turnover.
- Competitive Threat
When your best people leave, they’re most likely to end up in the last place you’d want to see them: with your competitors. The loss of knowledge and expertise ultimately costs you twice, as your competitors gain the asset you have just lost.
When you add it all together, the costs can be staggering. For individual companies, this translates into hundreds of thousands, or even millions of dollars in preventable losses.
Planning Your Employee Retention Budget
Now that we’ve explored the hidden costs of turnover, the next step is to decide how to allocate your retention budget wisely. The goal isn’t to spend endlessly but to invest strategically in areas that deliver the most significant impact on engagement and loyalty. Here’s how to break it down:
1. Start Strong: Budget for New Hire Retention
You’ve probably heard this over and over, but it’s worth repeating: First impressions are everything. And if you think this is an exaggeration, consider the facts: approximately one-third of new employees leave within six months, and effective onboarding has been found to increase employee retention by a remarkable 82%.
The first 90 days set the tone for whether an employee feels like they belong or starts planning their exit. A small, thoughtful investment during onboarding can provide outsized returns in long-term loyalty.
A welcome kit is one of the greatest (and most affordable!) onboarding gift ideas to retain new employees in this case. It won’t break the bank, with a reasonable budget typically falling somewhere between $75 and $100 per new hire. Yet, it should contain all the necessary items to make new employees feel a part of the team right at the onboarding stage.
The higher the employee’s feeling of belonging, the more likely they are to stay with you longer, rather than waving goodbye after the very first week (or even day, at worst).
To enhance that feeling, more often than not, companies pack their welcome kits with branded goods like these:
- Apparel: T-shirts, hoodies, or tote bags
- Drinkware: Water bottles, coffee mugs
- Stationery: Notebooks, pens
- Desk accessories: Mousepads, desk organizers
- Tech: Chargers, headphones, or even laptops (if the budget permits)
For example:
Take a look at Mercari’s welcome kit, which includes a custom-branded hoodie, T-shirt, and other items featuring the company’s logo and name.
2. Build One Digital Hub for Engagement
Did you know that 77.63% of people consider workplace connection important or very important in terms of company culture?
Employee experience plays a massive role in whether people stay or leave, and this is a critical point for businesses with remote teams.
Disengaged employees are three times more likely to leave within the first year. Unfortunately, many companies unknowingly sabotage retention by forcing teams to juggle a dozen disconnected tools that create a negative working experience for remote workers. This is why it’s important to have unified communications systems.
You can opt for all-in-one platforms to avoid overspending on separate tools for employee collaboration, communication, recognition, and so on.
For example, the Microsoft 365 suite, which is much loved by large teams working remotely, comes with a bunch of add-ins and built-in features literally for everything, from an enterprise email with OWA for unifying business communications to Microsoft Viva for boosting employee experience (which is key to retention).
Not to mention that Microsoft Viva itself offers a wide range of team features:
- Viva Learning → To integrate corporate training into workflows
- Viva Connections → To keep in touch with each other
- Viva Pulse → To collect and analyze employee feedback using pulse survey software
- And more.
3. Personalize Benefits to Cut Wasted Spending
Gym memberships and free snacks sound great on paper, but in reality, they won’t move the needle when it comes to keeping your people engaged. You know what will? Providing them with the benefits they actually want.
Today’s employees expect personalized, flexible benefits that match their real needs. You don’t even necessarily need to spend more to achieve this. What you need to do is spend in a way that’s closely attuned to their needs.
Examples of tailored benefits:
- Financial wellness or debt relief programs.
- Situationally relevant tutoring or educational support, such as reading practice for employees with children who may need extra help.
- Tuition reimbursement for employees or dependents.
- Mental health services like therapy stipends or meditation app subscriptions.
When benefits actually align with what people value, engagement rises, loyalty deepens, and turnover costs shrink.
4. Fund Career Mobility, Not Just Perks
Do you offer your employees a genuine path to growth and leadership? If you aren’t, you might be unwittingly pushing your best staff out right from day one.
The thing that too many businesses don’t realize is that many employees don’t leave because they hate their jobs. In many cases, they actually love the work they do, but they still leave simply because they don’t see a future at the company. You can solve this by putting in place effective career plan mapping for all staff.
Another point many business leaders miss is that career mobility could mean making a horizontal or diagonal move between business functions or departments.
Suppose one of your staffers expresses a strong intention to try another job role unrelated to your department. You could support them by offering reskilling courses or even by investing in tools like an AI resume builder to help them polish their resumes when applying for in-house jobs in other departments.
And if you’re wondering what the ROI from this might be, LinkedIn research shows employees at companies with strong internal mobility programs stay two times longer than those without.
So, How Much Should You Spend on Employee Retention?
There’s no universal formula, but research and best practices suggest aiming for 10–15% of an employee’s annual salary on a mix of:
- Onboarding
- Engagement tools
- Personalized benefits
- Career growth programs
Now compare that to the 50–200% salary loss every time someone walks out the door. A proactive investment in employee retention, regardless of how much you spend exactly, will help to keep your best people loyal and engaged.
In many ways, it works just like insurance. A little amount invested upfront might save you from having to blow the budget down the line.The truth is, successful employee retention begins with recruitment. Here’s why you should use a technical staffing agency to help with this.
