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Linking Engagement and Profitability

The Harvard Business Review recently published an article called "Putting the Service-Profit Chain to Work". This article does an excellent job explaining the linkage between leadership, employee engagement, customer retention and profitability. It also includes some very interesting case studies and data. A few key points are listed below. To read the entire article, click here.

One recent study of an automobile dealer’s sales personnel by Abt Associates concluded that the average monthly cost of replacing a sales representative who had five to eight years of experience with an employee who had less than one year of experience was as much as $36,000 in sales. That is only the sales loss cost - which does not count the hard costs of replacement and lifetime value of a customer.

The lifetime value of a loyal customer can be astronomical, especially when referrals are added to the economics of customer retention and repeat purchases of related products. For example, the lifetime revenue stream from a loyal pizza eater can be $8,000, a Cadillac owner $332,000, and a corporate purchaser of commercial aircraft literally billions of dollars.

By examining employee turnover records for individual stores, Taco Bell has discovered that the 20% of stores with the lowest turnover rates enjoy double the sales and 55% higher profits than the 20% of stores with the highest employee turnover rates.






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