How Employee Turnover Creates Customer Turnover

With all the concern about voluntary turnover, including the separation costs, recruitment and retraining costs, and lost productivity, often overlooked is the really huge but largely unmeasurable cost associated with customers who go away and don’t come back. For many companies, trying to provide quality service to their customers is akin to fighting a bush fire with a bucket brigade. Employees turnover so fast that they can never field a well-trained customer service team.

Studies across different industries, including banking, retail, telecommunications, personal computing, investment management, and insurance reveal  that customers not only are dissatisfied, but actually shift their allegiance because of service they perceive to be unresponsive or inadequate. One recent study showed that more than 60% of respondents were dissatisfied with the service they received from companies in one or more of the above-mentioned industries, and more than 80% perceived that employee retention was the cause of the poor service.

In that study 57% identified poor employee training as a leading contributor to deficient service, only 20% were satisfied with the service provider’s ability to retain the best employees, and only 20% said they would want to work for the service provider.

Does poor service cause customer defection? Indeed it does. Where customers perceive little difference in either products or pricing, they attempt to differentiate on the basis of customer service. Unfortunately, as a survey dramatically showed, less then 40% of respondents were highly committed to their service provider, and the telecom and banking sectors fared most poorly, with high commitment ratings of only 36% and 29% respectively.

Data collected in a study of 98 hotels in the US produced these alarming numbers: for each dollar increase in ADR  (average daily rate) each percentage point of turnover costs an additional $525 in gross operating profits. Whereas the typical hotel with an ADR of $77 would see profits diminished by $7550 for each percentage point of turnover, those more highly priced hotels (accompanied by higher customer expectations for service) with an ADR of $125 take a hit of $32,750 for each percentage point of turnover. The message is clear. When the service doesn’t match expectations, the customers disappear.

In every industry the specific numbers may differ, but the same principle applies: selling a new customer is many times more expensive than retaining a current customer. If a major aspect of your business is customer service and service- driven sales, then reducing turnover is a critical factor in providing the level of service that customers expect, and in making your business less vulnerable to customer defection.

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