6 Employee Retention Strategies for Small Businesses That Don’t Cost a Dollar

Employee retention in a tight labor market is critical. You invested time and money in training your staff, and losing that only to have to start the process over again is a huge drain on your resources, especially as a small-business owner. These six free strategies can help you nurture and retain employees without spending a dime. 

1. Start from the top.

It may seem counterintuitive, but according to Brian Plath, owner of Wayfinder, a consulting firm focused on customized training, leadership development, sales training, and customer service, developing managers’ leadership skills has a trickle-down effect. 

“People don't quit companies, they quit bosses,” Plath says. “A truly great leader and a strong organization impacts your job satisfaction, your loyalty, your stress, your work-life balance, how you view the organization, how you view yourself and your co-workers.”

There are a number of free leadership courses available online, but having the best leaders at your company present tactics they use or having them mentor newer or potential leaders makes a huge impact on the people they’re leading and the business as a whole.

“The way to really affect long-term recruitment, retention, and engagement is to develop your leaders so that they're having the types of conversations and building the type of positive work culture that develops people,” Plath says. 

2. Have the tough conversations.

Most managers dread speaking to an employee about poor performance because it’s awkward and uncomfortable for everyone involved. But having tough conversations sooner rather than later can have a ripple effect.

After all, Plath says, the culture of any business is shaped by the worst behavior the leader is willing to tolerate.

“We see it all the time where you've got a strong performer who doesn't really feel like they’re making a difference, and they see other people maybe not performing, and they don't see any correction there,” Plath says. “So it can kill morale, it can kill the productivity of other great employees and just bring everybody down to this modern mediocre.”

Rather than waiting for an employee’s work behavior to necessitate a performance improvement plan, which could even have the opposite effect, it’s important for leaders to offer measured feedback even for small issues.

“If you're doing your job as a leader, then you have open communication with your teams, you're constantly working with them. You're not saving things up for a quarterly or annual review, but you're always talking with people, holding people accountable in a positive way, and continuing to develop folks every day,” Plath says. 

3. Embolden them to recognize their peers.

It feels great getting a compliment for a job well done, and setting up ways for employees to recognize each other, even without awards or prizes attached, can help them feel valued and even increase your retention rate.

Gallup’s 2022 Transforming Workplaces Through Recognition Report of more than 12,000 employees across 12 countries found that those who feel recognized by their employer are up to twice as likely to evaluate their lives and futures positively.

That report also found that employees who felt they had recognition were 90% less likely to report being burned out at work "always" or "very often."

4. Give your employees more flexibility.

COVID-19 forced many companies to be flexible in letting their employees work from home. And while some jobs require full-time work at the office, data from the October 2022 Global Survey of Working Arrangements, carried out by the National Bureau of Economic Research, found that offering fully remote or hybrid schedules can help boost employee retention. 

The way to really affect long-term recruitment, retention, and engagement is to develop your leaders so that they're having the types of conversations and building the type of positive work culture that develops people.

—Brian Plath, owner, Wayfinder

In that survey, data from 34,875 respondents was used to find that, after the pandemic, employers plan to allow employees to work from home an average of 0.7 days per week, while workers want to work from home an average of 1.7 days a week. 

And when asked what they would do if their employers “announced that all employees must return to the worksite 5+ days a week,” 26% of respondents said that they would either quit or look for a new job that allowed them to work from home one to two days a week. 

In a July 2022 working paper from the National Bureau of Economic Research, 1,612 randomly selected employees in a large technology firm were allowed to work from home two days a week. That hybrid arrangement reduced attrition rates by 35% and increased self-reported work satisfaction.

Employees seem to be more satisfied when they feel they have a choice in the matter and can make a decision that’s best for them and their families.

5. Find the right role for your employees.

Although new employees have good intentions when starting a new job, it doesn’t always work out. Unfortunately, Plath says, struggling employees are often “managed out” of the business. 

“It could be that they just aren't built for this job. Are there other jobs within the organization that would be better suited to them?” Plath says. 

He suggests being creative and understanding the The way to really affect long-term recruitment, retention, and engagement is to develop your leaders so that they're having the types of conversations and building the type of positive work culture that develops people.” —Brian Plath, owner, Wayfinder

employee’s strengths to find a better fit. That way, the institutional knowledge that employee has gained about the company and its goals remains in the business, rather than helping a competitor.

“If you treat people with respect, you're honest with them, and you're helping them to explore these different options, it's not an issue,” he adds.

6. Ask for their feedback – and do something about it.

It’s always good to understand exactly what your employees think about the business, and many organizations offer opportunities to get employee feedback. But according to The Explorance Employee Feedback Survey of 2,000 U.S. adults, conducted by Wakefield Research in August 2021, 45% of employees and 40% of executives don’t believe their feedback leads to meaningful change. Meanwhile, 41% of survey respondents said they were looking for a new job. 

Creating actionable steps to fix what employees identify as problems can help boost retention because it shows you’re listening to what they say. Those changes can improve your company’s culture and employee morale, too.