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The true cost of hiring an employee vs retaining

Aug 13, 2020

Have you ever hired someone who was perfect during the interview process but was less than competent when the work started? Do you let them go?

This often happens with coaches in the online space. They think that when it's not working out with a team member, they have to let them go.

We're often told to hire slow and fire fast. Right?....Wrong.

In this post I’m gonna talk all about the true cost of hiring an employee vs retaining existing team members

I’m also going to share some key strategies like how to determine salaries, ways to compensate employees, and how to set them up for success so that you have team members that you can trust to produce the best results for you.

The true cost of Hiring an Employee that No one Talks About


It actually costs you 33% of the employees salary to replace them. In other words, if you have someone who's making $21 an hour and they're working full time, it’s going to cost you about $15,000 a year just to replace them.


You’re not only going to lose money but you're also wasting time. Every time you have to onboard a new person and get them up to speed, you are losing time. AND TIME IS MONEY

Weakens your business

If we're just blaming the employee or thinking that they weren't competent, we miss the critical opportunity of strengthening our own business by learning from why it didn't work out with them.

It's like you’re yelling at a puppy that's potty training and replacing it with a new dog and then wondering why the dog isn't potty training. 

Well, you didn't take it through the entire potty training process. You’re just yelling at the puppy. You’re not going to get the final outcome that you want and nobody's going to grow in the process.

Setting up your employees for success

When you’re feeling like somebody isn't performing, the first and most important thing you want to look at is your infrastructure. 

What does the training and onboarding look like? Is it set up so that they can succeed? Is it clearly laid out so that anybody walking up from the street can follow those directions?

Yes or no? Why or why not? And then making sure you take responsibility for the part you can control. Which is how the directions, the training and the management is set up. 

If we continue to only blame the team member and fire them when things don't work out, then your systems, structures, orientation, training, and processes don't get to improve for the next member who joins your team. 

So what can you do to set an employee up for success?

Firstly, you have to have an onboarding process that works, and is set up properly to ensure that that person is adequately trained and managed in their role.

This will ensure that the role is refined in such great detail and have income producing activities that the member can execute on with Key Performance Indicators (KPI), which are numbers that you're going to measure them on to make sure that they're performing adequately. 

Secondly, you want to make sure that your processes, systems, and training processes are set up in such a way that anybody can come through your company and create the results you want. 

Every single result should be able to be executed through processes and manuals. These are step by step instructions so that anyone can walk off the street and be able to produce that same result.

Understanding Business Budgets: A Guide for Coaches

When I first started growing a team, I had this gigantic team. I called it a Titanic team. 

All I was doing was working my butt off to pay everybody on the team and not really paying myself what I needed.Because I didn't understand the budget. I didn't take into account the Return on Investment (ROI) of each employee. 

The problem arises when no forethought is put into how that person is going to make money for the company. So therefore you have to make more money just to cover their head. And that just makes more work for you.

And if that person by any chance is a genius and figures it all out on their own and does all the work exactly like you want them to with zero training (I’m talking about a unicorn here obviously). Then you become dependent on that person. 

And when that person leaves, you lose the ability to recreate their person's success. Because it wasn't documented and set up properly in terms of your business.

Your business wasn't the vehicle and the way in which they created those results. 

How to determine salaries

To determine salaries, you want to make sure you understand your business's budget and the team members role in that budget.

Write this down. 

Every team member must generate 4 to 10 times their salary in order for your business to remain profitable. They have to be able to cover their own head. 

From having a Titanic team I was lucky to learn the importance of that ratio and of building out a team and a company in such a way that each person is generating profit for the business.

Ways to compensate employees

Next, you wanna make sure you're looking at your compensation plan. 

  • How are you paying your people? 
  • What is the incentive for staying with the company? 
  • What is the incentive for their commitment during times where more work is required?

In a coaching company, you're going to have times where you're doing launches and extra working hours is necessary. So you have to ask, what's in it for the team when they're working extra time? What’s in it for them?

Here are some of the ways that we've done it.

Base salary plus Commission. 

You sell this much. You'll get this much commission. 

Bonuses during launches. 

So if they are doing a launch and we hit our goals, then they’re going to get this bonus. And we also offer bonuses for sales goals that are met. 

Incentive for staying longer. 

If you've been here this number of years, or you've done this much of sales, you're gonna bump up your commission to this rate, or whatever. 

To sum it all up 

It is much more expensive to replace a team member than it is to hire and keep a good team member. 

Make sure that each team member's role generates 4 to 10 times their salary so that they can be profitable for your company. 

Look at how you're compensating your team and making sure you're creating a system that's going to help them stay long term. 

The key to keeping a good team member is to have the systems, processes and onboarding in place that are going to allow you to clearly communicate what they have to do.

Each member should know what the expectations are, and be able to produce the results that you're looking for in a systematic way that anybody can follow. 

Are you ready to ditch the pressure of making money only to cover everyone's head? Sign up for our free webinar training today and learn how to get the most out of your team and help everyone succeed. Register here