Employee retention boosts profits
In the automotive services industry, local garages usually have the highest customer retention and the lowest employee turnover. When customers were asked why they were loyal to local garages, they said they felt more comfortable doing business with a mechanic who knew them — and their cars.
Employees who stay with organizations for a long time can be very valuable. They have the ability to build solid personal relationships with customers, enjoy greater opportunities to learn more efficient ways of doing their work, and reduce the need for recruiting and training new people. Customer and employee loyalty go hand in hand.
Frederick F Reichheld, founder of Bain & Co.’s loyalty practice, points out that a trucking company found it could increase profits 50 percent simply by cutting turnover in half. Many organizations pay little attention to the relationship between customer and employee loyalty because they don”™t know how much it is worth.
In his book “The Loyalty Effect,” Reichheld says, “In the brokerage industry, half of the customers who switched firms did so because their brokers moved to a new company. To bring a new broker to profitability, the up-front cost of hiring and training exceeds $100,000. It isn”™t until the third year that new brokers will earn any real profit for the firm.”
What does it cost you to find, hire and train a new employee? How much time is taken away from the jobs of existing employees in that process? How long does that new person have to be there in order for you to simply break even on your investment? What is the effect on your customers when a good employee leaves?
In “Wired to Care,” author Dev Petnaik says, “We are wired to connect with and care for others. The limbic system enables us to form tight bonds with friends and family members. We share emotionally charged memories with them, and they become deeply embedded in our responses over time.” Only time can allow this emotional connection to develop between your employee and customer.
Consider creating new measurement systems that will carefully analyze the results of improved retention. Retail stores usually concentrate on sales per square foot. Nordstrom measures revenue per sales clerk and ranks each clerk”™s performance on the employee bulletin board. The very nature of this metric encourages employees to develop caring and nurturing relationships with their customers.
Insurance claims adjusters are measured on the average size of the claims they approve and are never promoted for being too generous. The catch-22 is that when they underpay, adjusters alienate customers who take their premiums to another company. The solution: Measure each adjuster”™s customer retention rate.
By combining each adjuster”™s average claim amount with his or her retention rate, the company can see his or her revenue and profit contribution to the company. Adjusters trained to understand the value of high retention rates now take customer loyalty into account when deciding how to settle each claim.
The most successful organizations are not offering retirement incentives to their longest-serving and highest-paid employees. They realize the significant value of the relationships and the profits that these workers add to the organization. Customers don”™t do business with a company or organization — people want to do business with people they know.
Questions for discussion:
How much are we losing as a result of employee turnover and what can we do in order to increase retention?
What can we do to build even stronger relationships with our employees and our customers? Can we facilitate their getting to know each other better?
Joe Murtagh is The DreamSpeaker, an international keynote speaker, meeting facilitator and business trainer. For questions or comments, Joe@TheDreamSpeaker.com, www.TheDreamSpeaker.com or call (800) 239-0058.