Three Free Ways To Improve Retention

Three strategies you can implement to improve employee retention today won't cost the company a dime, where to donate to support families affected by the LA fires, and discounted tickets on Transform 2025.

Author

Cris Cafiero
February 19, 2025

đź‘Ś Three Free Ways to Improve Retention

A high performer just left your startup. The conventional response is as follows: backfill the role, adjust team responsibilities, update the org chart. Pretty straight forward, right?

In theory yes, but in practice… not so much. Recent studies show that losing a key team member can cost your company up to 50% to 200% of their annual salary. For early stage startups, this is a serious hit to their runway. The problem is that it doesn’t stop there.

When you lose a key team member, the impact ripples through your entire organization in ways that aren't immediately visible on your P&L.

People Economics

Here’s a great example by Maia Josebachvili, Global Head of Enterprise @ Stripe & formerly Greenhouse, who developed a concept I love called the “ELTV Framework” or “Employee Lifetime Value.”

Imagine two seemingly identical salespeople join two very different startups. Both sales people are talented, smart, and command similar salaries. The startups approach their talent strategies differently:

  • Startup 1: A normal organization with average People Practices

  • Startup 2: An organization with optimized People Practices

What does Maia mean by People Practices? She breaks this into four main steps:

  1. The first step is talent acquisition. Taking a data-driven and value-based approach to sourcing, interviewing, and closing candidates can outperform a peer by 20%

  2. The second step is an optimized onboarding process. By including pre-boarding, deliberate new hire experience, and training ramp time can be decreased by 30%.

  3. The third step is management & development. After onboarding, coaching, mentorship, and training can improve an employee’s performance by 20% in a year.

  4. The fourth step is culture & engagement. Strong engagement can add up to a year to an employee’s tenure.

To put sample numbers to this model, imagine both salespeople performing at 100% monthly quota attainment have:

  • $5,000/mo salaries

  • $50,000/mo quotas

  • Output of: $45,000 in net revenue ($50k in sales - $5k in salary)

If we add these numbers to the model above, what’s the difference in value creation between these two scenarios? Over the course of three years, the difference is $1.3m in net revenue or 2.5x difference for the startup that optimizes its People Practices.

While oversimplified, the model provides a ton of value to an early stage company’s approach to talent management. It makes measuring the ROI on best-in-class people strategies possible, and shows how small improvements in engagement & retention can have dramatic effects on organizational output.

Why Retention Math Doesn’t Add Up

Most companies use a common formula to calculate the cost of turnover:

Turnover Cost = Recruiting Costs + Onboarding Costs + Loss of Productivity

But I think this simple equation drastically understates the reality. Here's why:

  1. Productivity compounds - Employees themselves are “appreciating assets” (a concept that Josh Bersin coined) who become more valuable to a company as they learn systems, products, and how best to work with colleagues. This learning curve is particularly steep in technical roles. The cost of losing a 10x engineer (or cracked, as the kids say), is a loss of compounding returns on institutional knowledge.

  2. Immeasurable network effects - Studies & research show high-performing employees that feel connected tend to get more work done & faster, creating a multiplier effect that most cost models can’t capture. You lose someone within that network and it quickly becomes a house of cards effect.

  3. Tax on turnover - 27% of employees currently searching for new jobs means nearly a 1/3 of your team is disengaged and lacking in productivity. What’s the impact to the company bottom line when employees don’t want to be there? What’s the impact when their pessimism spreads?

More Money, More Problems?

These days, you can't simply throw money at the retention problem. Think about the last time you felt truly disconnected from your work. If your current company matches a competitor’s offer, would it be too little too late? Would a 20% raise have magically reignited your passion?

Research suggests probably not. According to Josh Bersin's analysis, compensation acts like a "hygiene factor" - too little will definitely send people running for the exits, but extra zeros in their paycheck won't make up for a soul-crushing environment. Well-paid but unhappy employees will simply take their talents to South Beach. Here are a couple stats that stuck out to me:

Once you've met the baseline needs of competitive pay and job security, employees start asking deeper questions: "Am I using my best skills here? Does anyone actually appreciate my work? Do I fit in? Am I proud to tell people where I work?" The data suggests that if you're hoping to solve cultural and engagement problems with only your checkbook, you're going to be disappointed with the results.

It’s not all doom & gloom, though. In fact, a huge opportunity lies in wait. The highest-ROI investments into retention - which will take a bit of thoughtful planning, implementation, and execution - are actually free.

Three Cost Effective Ways to Improve Retention:

  1. Build trust & relationships early on - Companies obsess over getting new hires productive quickly (see above ELTV model). But there’s more to it than that. Employees who build strong internal networks in their first 90 days are significantly more likely to stay. Those “right people” are in your organization, so leverage their background & expertise and give employees access to other departments so they can learn the business & expand their skill set.

  2. Make it mean something - Employees believe working for an organization with a purpose they can be proud of is the top factor in helping them thrive (Gen Z is leading the way here), and factor this above compensation and benefits in many cases.

  3. Design for the long term - Most retention programs focus on the first 90 days (see #1), but data shows the biggest flight risk comes between year 1-2. Your retention strategy needs to extend well beyond onboarding. Mentorships, training, defined career pathing, and pay-for-performance are all easily implemented strategies.

Takeaways:

We’ve heard it all before… “People are our greatest asset.” And yes, it’s true. Your team is your largest source of potential value creation. When key folks leave, you don’t just lose a number in your headcount, you lose tribal knowledge, expertise, experience, and any future compounding value.

My prediction is that the best startups of the next 5-10 years won’t win by paying the most. They’ll win by building environments where exceptional people can grow, thrive, and help other ambitious folks do the same.

Can you afford to invest in retention? I’d argue that’s the wrong question.

Can you afford not to?

What other retention strategies do you practice in your startup? Let me know below:

❤️ Los Angeles Fire Department Foundation

While it feels like the worst is over, LA is just at the beginning of its rebuilding journey. Many families have lost their homes and need immediate support for temporary housing, food, and essential supplies. Here are some available resources:

Please consider donating to the California Fire Foundation. Every contribution helps provide direct assistance to affected families.

As a Hermosa Beach resident in South Bay of LA, my heart goes out to everyone impacted by this disaster. Together, we can help our neighbors rebuild.

“The California Fire Foundation provides critical support to surviving families of fallen firefighters, firefighters, and the communities they serve. Your tax-deductible donation will help us commemorate fallen heroes, offer scholarships to children of fallen firefighters, provide aid to victims of fire or other natural disaster, and provide fire safety resources to underserved communities across California.“

📆 Transform 2025 Discount Code

Transform 2025 is the premier gathering of business leaders, investors, and entrepreneurs focused on transforming the now and next of work for the better.

Come join me to learn, get inspired, and connect with your peers.

I’m lucky enough to have a discounted partner link that offers $200 off the normal ticket price!

Register now with my partner link to secure the lowest pricing:

Thank you for reading and joining on this journey with me!

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