Numbers Don’t Lie: Why Investing in Onboarding Matters

Onboarding is an important part of the employee lifecycle in terms of employee engagement, integration and retention. The process is designed to help new hires start the company journey on a positive note. Businesses that invest proper time and efforts implementing an interactive onboarding strategy have higher employee retention, as well as higher levels of productivity and engagement with new hires. In fact, when matched with a good onboarding experience, 69% of employees are more likely to stay with a company for a minimum period of three years.

Many organizations underestimate the value of an engaging onboarding process. Starting the employee lifecycle with a full-fledged retention strategy—such as relationship building activities, mentor support or social gatherings—is extremely important in creating positive associations between a new hire and the organization as a whole.

As it is often said, first impressions matter. Unfortunately, most companies tend to solely focus on hiring activities or apply efforts towards retention activities only later on in the employee lifecycle, missing the first impression mark, which can result in a domino effect of negative internal repercussions and often leading businesses towards higher turnover rates. Companies in both the United States as well as the United Kingdom are estimated to spend $37 billion dollars annually to retain unproductive employees. A better return on investment to increase employee retention would be to implement an engaging onboarding program, engaging employees from day one.
As we have previously covered, onboarding can be a long and tedious process with many costs associated in bringing new hires to the team, including the cost of equipment and new softwares. The biggest cost typically incurred by businesses during the onboarding process, however, is the time HR managers and team managers spend in preparing a solid onboarding program. That said, the time and money is a worthy investment in the end, given that a successful onboarding process leads to motivated employees with higher productivity levels and a stronger sense of belonging (as well as commitment ) towards organizations.

The Relationship Between Onboarding and Company Costs

New employee onboarding establishes strong first impressions and ultimately sets employees up for success. The process is proven to help decrease employee turnover, while increasing levels of retention, engagement and productivity. According to a study by HR Dive, it is estimated that the cost of replacing an employee is 33% of a worker’s annual salary. In numbers terms, the cost of replacing an employee with an average yearly income of $45, 000 can amount to $15,000 per person. High turnover means that HR managers have to restart the employee acquisition process and invest additional time and money in onboarding a new set of employees. Additionally, when members leave a company, it is important to account the period of time it takes to find new employees to fill the role. During this gap, the remainder of the team is usually forced to go into overdrive to make up for the employee shortage. Given that, 22% of companies have no formal onboarding program at all, while 49% only have a partially successful process, the turnover gap is quite common and can be overwhelming for individual teams and businesses as a whole. Thus, a supportive foundation from inception to completion is very important in securing long term employment within a positive working environment.

How to Calculate the Cost of Onboarding New Employees

Preparing an onboarding strategy is time consuming and is usually a collaborative effort between the HR manager and team manager. According to SHRM, the average cost to hire new employees is about $4,125 across organizations and industries. The general formula in calculating onboarding cost is by averaging the number of new employees hired per year with the average hours spent in onboarding new employees, along with the annual salary HR managers and team managers make. The formula only accounts for the preparation period of the onboarding program but—and as seen in our previous blog 4 Essential Onboarding Checklists for New Employees—the onboarding timeline realistically occurs over one full year from an employees start date. 

Not forgetting the pre-onboarding phase, companies also have to take into consideration the number of hours HR managers and team managers spend throughout the year in onboarding new hires. Doing so enables managers to forecast a more appropriate onboarding cost schedule. For example, if an HR manager makes 25$/hour and needs 10 hours to prepare the onboarding strategy, and the company hires 60 new employees per year, that gives a base cost of $15,000 per year dedicated to pre-onboarding alone.

Saving Money With an Effective Onboarding Process

Higher productivity from day one

Organizations with a standard onboarding process experience 54% greater new hire productivity. Onboarding not only prepares new employees for the first day of employment but it also helps accelerate the productivity curve. Companies who don’t have a strong onboarding program spend the first few weeks in introductory meetings and training with new employees. There is a certain time frame where new hires are not actively productive within their role—an effective onboarding process helps speed up the road to productivity for new hires. To make the integration within a new company more interactive, HR and team managers can scatter training sessions and informative sessions, throughout the different stages of onboarding. Doing so saves employees and managers time and money by allocating the productivity time to more important projects. As an example, if a company estimates an hour of savings per 200 employees, it would amount to 200 saved hours that the company can dedicate elsewhere. We’ll let you do the math!

Reduced turnover

In any business, turnover is one of the larger costs that affects the company’s bottom line. A poor onboarding experience lowers the potential value new hires can dedicate to businesses, ultimately increasing employee turnover. In fact, almost one third of new hires start looking for a new job within the first six months if they experience dissatisfaction during the early stages of employment within an organization. Harvard Business Review highlights that organizational costs of employee turnover are estimated to range between 100% and 300% of the employee’s salary. However, these numbers can be lowered with a well-thought-out interactive onboarding strategy—reducing turnover and increasing productivity. For more insights, we invite you to read The Ultimate Guide to Successful NewEmployee Onboarding.

Employer branding

Employer branding involves HR managers and members putting promotional efforts in making a company desirable. It is a crucial step in attracting new employees and establishing positive connections. Working for a business with strong employer branding generally motivates employees. Hubspot notes that a good employer brand can reduce turnover rates by 28%. With the rise of company review websites, such as Glassdoor and Indeed, job seekers rely on past employee experiences to decide where to apply. A company with high turnover is likely to have more negative reviews, resulting in businesses having to put additional marketing efforts in building a positive employer brand. A Randstad research notes that 86% of job seekers would not apply for a job that has a negative image. Thus, employer branding affects the company bottom line and is directly linked to both recruitment and turnover rates.

Reduce company costs with onboarding

As we’ve seen, an effective onboarding process results in long-term employee engagement, with 50% higher productivity levels. Setting up an effective onboarding program is a year-long process and can be very time consuming. One of the best ways to save time is by using onboarding tools and resources, such as Softstart—providing a platform for collaborators to ideate, implement, track and review onboarding experiences from inception to completion. A  tool like Softstart allows managers and new hires to easily participate in creating a dynamic and memorable onboarding experience, resulting in higher levels of performance, engagement and retention all around. It is an easy-to-use platform, with built in templates and activities. With the help of Softstart, managers can easily assign and connect parties with each other through different interactive activities, while allowing users to keep track of a new employee’s progression and provide support accordingly. To learn more about Softstart, find our step-by-step guide here.

At the end of the onboarding program—typically lasting one full year—keeping employees engaged during their entire employment period still remains essential to a company’s success. Officevibe offers additional tools and services for maintaining continued high levels of motivation and engagement within teams, starting from the end of the onboarding program until the end of the employee lifecycle.

Key Takeaways

A strategic onboarding program has many advantages for companies—it helps increase employee retention, engagement and productivity, while lowering costs related to turnover. An interactive onboarding program helps foster a positive brand image, as well as a positive work culture, bettering an organization’s bottom line. The benefits of strategic onboarding far outweigh the costs and is a must for businesses across all industries. This is exactly why we came up with Softstart, to help simplify the process of planning and executing effective onboarding programs, as a one-stop-shop solution for building full-fledged onboarding strategies. Try it out and see for yourself!