How Does Employee Retention Impact Customer Loyalty?

The average U.S. business loses about 15% of its customers each year. Retaining customers is a crucial aspect of successful businesses, as it directly affects the company’s annual recurring revenue and loyalty.

While many companies focus on customer retention, many fail to recognize the link that exists between customer retention and employee retention. If employees are engaged and loyal to a company, they’re more likely to provide exceptional service to the company’s customers.

Read on to discover more about the relationship between a high rate of employee retention and customer retention.

INFOGRAPHIC: Employee Retention: How Do Culture & Connection Play a Role?

What Is Employee Retention and Why Is It Important?

Employee retention refers to how many employees your company keeps on an annual basis. Having a low turnover rate is beneficial to your company in many different ways. First, it helps ensure productivity remains high as, as there’s no lost productivity due to unfilled positions or downtime caused by onboarding and retraining.

Preventing lost productivity can help your company’s bottom line, and keeping a low employee turnover rate can also help keep recruitment and training costs low. Additionally, a low turnover rate can help boost employee morale and engagement. Employees feel settled in their roles when there isn’t constant disruption caused by turnover.

Finally, investing in and prioritizing employee retention can help further the skills of your workforce. This is because you’ll be able to focus your efforts on motivating and upskilling employees. This, in turn, can result in a highly trained workforce, which can benefit many areas of business, including customer service.

How Does Employee Retention Benefit Customer Retention?

There are a handful of ways that a high rate of employee retention benefits your company’s customer retention rate. Here’s an overview of the most common benefits.

Employee Retention Leads to Empowered and Engaged Employees

Organizations with high rates of employee retention tend to have higher rates of employee engagement. When an employee is engaged, they are actively involved in their organization and enthusiastic about their company’s mission and vision and their success in their role. As it pertains to customer retention, engaged and empowered employees are more likely to:

Feel comfortable making decisions
Go the extra mile
Resolve customer issues.

They’re also prideful in their work, which leads to increased accountability and manifests in the form of providing high-quality customer service.

Employee Retention Translates to More Skilled Employees

The longer employees stay at an organization, the more they know about your company’s services and offerings. In short, they’re more knowledgeable about products and services, which is essential for being able to provide top-notch customer service. This translates to them being able to have more in-depth interactions with customers and gives them the ability to build trust and confidence.

Comparatively, organizations with high rates of turnover often have a long cycle of training, which leads to gaps in service knowledge, causing customer service to suffer.

Employee Retention Fosters Improved Customer Relationships

The longer an employee stays at a company, the more likely they are to form real relationships with customers. Customers appreciate familiar faces and personalized interactions, which becomes possible with retained employees. Having employees who have built a rapport with customers can help them anticipate needs and preferences, as well as translate service issues, which can lead to them being able to provide tailored solutions, all of which translates to higher rates of customer satisfaction.

Employee Retention Promotes Consistency

One of the hardest things for new employees to learn during onboarding is the nuance that comes with following standard operating procedures. If you have a high employee turnover rate, where you’re constantly hiring and training new employees, it can hurt your company’s consistency and adherence to processes. Comparatively, in companies with high employee retention rates, there is consistency that customers can expect, as employees are well-versed in procedures. Consequently, customers learn to trust your company more and then remain loyal to your brand.

Don’t Underestimate the Importance of Employee Retention When Evaluating Customer Retention

Investing in employee retention is a smart strategy for boosting customer retention. Engaged and satisfied employees are more likely to go the extra mile, build lasting customer relationships, and provide consistent, high-quality service. Their advocacy, combined with genuine care for customers, can lead to increased brand loyalty and positive word-of-mouth marketing.

Companies that prioritize employee retention are better equipped to understand and meet customer needs, creating a win-win situation for both employees and customers alike. By recognizing the interdependence of employee and customer retention, your business can create a thriving environment that fosters long-term success and growth.