$8.8 trillion. That’s what the world loses every year to employees who’ve quietly checked out — roughly nine percent of global GDP. And the companies bleeding that money are the same ones pouring fortunes into customer experience they’ll never actually improve, because the person serving the customer still can’t get a password reset.
In this episode of Marginally Better, Joe Taylor, Jr. unpacks a paradox most companies would rather not look at: your customer experience can never rise any higher than your employee experience. From the Harvard and Glassdoor research that finally measured the connection to the Seattle warehouse where paying cashiers like they mattered built a $440 billion company, this episode makes the case that the fastest way to fix what your customers feel is to fix what your employees live.
Episode Links:
The Cost of Disengagement
Employee Experience Drives Customer Experience
- Glassdoor Research — The Link Between Glassdoor Reviews and Customer Satisfaction (Chamberlain & Zhao)
- Harvard Business Review — Engaged Employees Create Better Customer Experiences (April 2023)
- Harvard Business Review Analytic Services — The Impact of Employee Engagement on Customer Experience (report PDF)
Costco Case Study
- CFO Dive — Costco raises minimum hourly wage to $19.50
- Macrotrends — Costco (COST) Market Cap
- The Motley Fool — Jim Sinegal on Costco’s “Promote From Within” Strategy
- Yahoo Finance — Nine Out of Ten Costco Members Renew
- A-Z Quotes — James Sinegal: “When employees are happy, they are your very best ambassadors”
Products Mentioned
Transcript:
[00:00:00] $8.8 trillion. That’s what Gallup says the world loses every year to employees who’ve checked out at work. About 9% of global GDP, that’s gone because people don’t care about jobs that give them no reason to. The same companies bleeding that money are pouring fortunes into customer experience. New chatbots, loyalty apps, journey maps on the wall, all of it aimed at the customer, while the person who actually serves that customer can’t get a password reset, can’t find the answer on the screen in front of them, and can’t get anyone to fix a tool that’s been broken for a month.
So today, a paradox most companies would rather not look at. Your customer experience can’t rise any higher than your employee experience. I’ll show you the Harvard research that put a number on it. I’ll tell you about a warehouse where the cashier earns more than some white-collar managers and why that was never charity.
And I’ll give you a two-question test that you can run on your own company before you spend another dollar on the customer. That’s all coming up on Marginally Better.
Every company says it puts customers first, but there’s a flaw buried inside that sentence. The experience your customers get can never be better than the experience your employees are living. And right now, in a lot of places, the employee side of that equation is in rough shape. Gallup’s State of the Global Workplace report pegs the cost of low employee engagement at eight point eight trillion dollars a year.
That’s roughly nine percent of global GDP. That’s the quiet drag of people showing up, doing the minimum, and feeling nothing about their jobs. Now, most leaders hear that and file it under HR problems. But disengagement doesn’t stay in the break room. It walks out onto the sales floor, it picks up the phone, it answers your customer’s email.
And the cost isn’t only the productivity that you can measure. It’s every interaction that lands a little colder than it should have. So the issue isn’t whether your people are disengaged, it’s where does that show up in your customer’s day? And it shows up somewhere.
By Gallup’s count, only about thirteen percent of frontline workers say they’re engaged at work. These are the cashiers, the reps, the people in the store and on the chat, the entire face of your company to the people paying for it. Now, part of this is tools.
Surveys of frontline teams keep finding the same thing. A large share say they don’t have the right tools that they need to actually do their jobs well. Now, we’ve asked the people with the least support to carry the most important relationships, and then we act surprised when the relationship feels thin.
So if you want to know where your customer experience is fraying, don’t start with the customer. Start with what you’ve handed the person serving them. Glassdoor has some economists, Andrew Chamberlain and Daniel Zhou. They matched about eight hundred sixty-three employee reviews against the American Customer Satisfaction Index.
That’s two hundred ninety-three big companies and eleven years of data. And in the industries where a human actually serves another human, retail, restaurants, travel, banking, they found that each one-star rise in how employees rate their employer tracks with about a three point two-point rise in customer satisfaction on a hundred-point scale.
Now, keep in mind, almost nobody moves a full star on that five-star index. Employer ratings usually bunch up somewhere between three and four stars, and customer scores bunch up between seventy and eighty-five on a hundred-point scale. So this is not about swinging the entire scale, but it is about the direction.
Across hundreds of companies and over a decade of data, the line from how you treat employees to how customers feel runs exactly the way that you’d guess, and somebody finally just measured the slope. Leaders are not entirely in the dark here. A Harvard Business Review Analytics Services survey found that fifty-five percent of executives said they don’t believe you can deliver a great customer experience without a great employee experience.
And yet, most companies still run customer experience and employee experience as separate departments, separate budgets, barely talking to each other. We believe one thing, and we organize for the opposite. You don’t need another strategy offsite to see the problem. Everything that you fund is pointed at the door when the thing that actually moves the needle is standing behind the counter. When we come back, I wanna take you to a concrete warehouse floor in Seattle in 1983, and a man whose own competitors said he was about to get destroyed because he decided to pay the people working that floor like they mattered.
And what happened next changed how I think of all of this. That’s after the break on Marginally Better.
Here’s a quick word about something we built over at Johns and Taylor because it grew straight out of what we were just talking about on the show. Everything in that last segment comes down to one thing: people do better work when expert help is actually there when they need it. That’s true for a cashier.
It’s also true for you, the person trying to make smart calls about your website and about your customer experience without a specialist down the hall. So that’s why we built something we’re calling Experience Helpdesk. It’s not a course. It’s not a thing you’ll never finish. It’s not some big agency retainer.
It is just our expert team help on demand. You send a question when it comes up. You can send us a quick voice note, a short video, or just a text, and you’ll get a real answer back from me and from my team, usually by the end of the next business day. The fork-in-the-road questions, the “is this developer quote reasonable” kind of questions, the “I’m stuck between two designs and I need a tiebreaker” kind of questions.
The ones that a course can’t answer and a meeting is too slow for. Now, our members also get our full resource library. These are 30 guided playbooks across nine areas of customer experience, plus a five-minute challenge every Monday that we use to help all our clients keep their momentum going. So we’re opening this up with a charter rate for the first 20 members in the door, and that rate’s gonna be locked for as long as you stay a member.
If you’ve ever needed a second set of expert eyes and you had nowhere to send that question, this is for you. Come see it over at experiencehelpdesk.com. That’s experiencehelpdesk.com.
It’s Marginally Better. I’m Joe Taylor Jr. In 1983, Jim Sinegal was getting ready to open the first Costco warehouse in Seattle, and almost everything about the plan was designed to be cheap. Concrete floors, steel racks, no decoration, no fancy lighting, products still sitting on the shipping pallets that they arrived on.
The whole place was engineered to strip out cost, except for one line on the budget that made Jim’s backers nervous: the wages. Because Sinegal didn’t wanna pay his people the going retail rate. He wanted to pay them well, and in early ’80s retail, that was close to heresy. The accepted wisdom was airtight.
Labor is a cost, and so you minimize the cost, end of conversation. Pay the floor, accept the churn, replace whoever quits. Everybody did it that way because everybody knew it worked. The story that’s followed Sinegal around for forty years is that Sam Walton, founder of Walmart, said Sinegal was gonna get his backside handed to him. The pros looked at his model and saw a man about to learn an expensive lesson. What they couldn’t see was that Sinegal wasn’t being generous. He was building a machine, and wages were just first gear.
For years, I heard the Costco story the way most people tell it. A feel-good tale about a nice company that treats its people well. I had it a little backwards in my head. When I dug into this, the real story is much more mechanical. So start with the wages because they’re still real.
In twenty twenty-four, Costco set a company-wide minimum of nineteen dollars and fifty cents an hour. That is the highest base floor of any major non-specialty retailer in the United States. And by the end of that year, the average hourly worker was earning closer to thirty-one dollars an hour. Now, for a full-timer, that’s north of sixty thousand dollars a year stocking shelves and running registers.
Now, look at what that decision sets in motion. When you pay people enough to build a life, they stop quitting. Costco’s turnover runs somewhere around eight percent. The retail average, and The Economist magazine put a number on it, is closer to sixty percent. That’s sixty percent of your people walking out the door every year taking everything they knew with them.
And that gap is everything because every time a retail worker quits, the next customer gets a beginner, someone who doesn’t know where things are, doesn’t know the products, doesn’t yet care. Costco almost never has that problem. Their people stay long enough to get really good and then to get promoted.
Sinegal built the company on promoting from within, and by his own account, the company fills its management almost entirely from the inside. Something like 85% of warehouse managers started as hourly employees. The person who checked you out last year could be running that building next year, and they know it.
So think about who the customer is actually meeting at a Costco. Not a clerk counting down the minutes. They’re meeting someone who’s probably been there for years. They know which products are about to be discontinued. They know whether the cheaper olive oil is any good, and they’ve got a reason to care whether you come back.
That helpfulness that people rave about isn’t just a personality trait that Costco hires for. It’s the output of the machine because good wages buy low turnover. Low turnover means people stay long enough to actually learn the place. And when you add a path upward and you get a workforce that acts like it owns the building, the smile at the register is the last step in a long internal process.
Now, the critics weren’t entirely wrong about one thing. Costco’s margins on the products themselves are thin, deliberately thin. They mark things up far less than traditional retail. And on that paper, if you’re just looking at the spreadsheet, that would normally signal a big problem. Except Costco doesn’t really make the bulk of its money on the products.
It makes it on memberships, the annual fees that you pay just to walk in the door. And memberships only work if people renew. So the entire business rests on one question. Do customers come back? And the answer, as of fiscal twenty twenty-five, Costco’s membership renewal rate was ninety-two point three percent in the US and Canada and just under ninety percent worldwide.
That’s more than nine out of ten customers every year choosing to pay again. That is the kind of loyalty that most companies would trade anything for. And the verdict on Sinegal’s supposedly suicidal bet? Costco’s market value sits north of four hundred and forty billion dollars. The man who Sam Walton said was gonna get destroyed for paying his people too much ended up building one of the most valuable retailers on Earth on the backs of employees who stayed, who knew their stuff, and who had every reason to make your visit good.
Sinegal said it about as plainly as it could be said. Quote, “When employees are happy, they are your very best ambassadors.” End quote.
The experience your customer gets is a rendering of the experience your employee is living. Costco didn’t out-market anyone. They just built a better machine on the inside, and the customer experience came out the other end, which should leave the rest of us with a question that could be a little uncomfortable.
[00:14:00] Because if a warehouse with concrete floors managed to figure this out, that customer experience starts with employee experience, what are the rest of us waiting for?
Before we wrap up with our last segment, one more quick thing, and it follows right on with that idea from Costco. Now, the big idea that we just went through is that your internal systems become your customer’s experience, whether you mean them to or not. Nowhere is that more true than your website, because your website is an internal system that your customers can see.
Every shortcut, every “we’ll fix that later,” every page nobody’s looked at in 18 months. Your visitors feel all of it, even when they can’t name it. Now, the trouble is, it’s almost impossible to see your own site clearly. You’re too close. You know where everything is. So you can’t always tell what’s confusing.
So that’s exactly what our team built the Website Reality Check for. It’s a little course that you can do in your favorite podcast player, 10 short episodes, and it’s a feed that you can listen to one chunk a day on your own time. Each episode walks you through a very specific lens. Like, is your value proposition clear? Does the first click make sense? How does it actually feel on a phone?
And by episode 10, you’ve got a prioritized list of what to fix and in what order. Now, what this isn’t, this is not a sales call in disguise. It’s not a pitch to rebuild your whole site. Most of the time, you do not even need a rebuild.
You just need to know which two or three things are costing you and which to fix first. That’s the job. If you’ve ever stared at your own website thinking, “Something’s off, but I can’t put my finger on it,” hey, we’re just charging $27 for this thing, and it’s the fastest way that I know to get this answer.
It’s at websiterealitycheck.com. Back to the show.
It’s Marginally Better. I’m Joe Taylor Jr. I learned something early in my career that I’ve never been able to unsee. You can tell a company’s real priorities, not the ones they choose to put on the wall, the real ones, by timing two things. How long does it take for a customer complaint to get a response?
And how long does it take a new employee to get a working computer? If customer issues get handled in hours, but a new hire waits three weeks for the tools they need to do their job, you’ve found a company that’s lying to itself a little bit about customer experience. Because the message that new hire just received loud and clear is speed matters when they’re watching, but not when you are. So let me leave you with a reframe. Your internal systems are not separate from your customer experience.
They are your customer experience, just on a delay. That clunky system that takes six screens to request time off, your employee’s irritation with it doesn’t evaporate. It rides along into the next customer call. The help desk that takes a week to reset a password, that’s teaching your whole staff that, hey, around here, getting things fixed is somebody else’s problem.
And then we wonder why they treat the customer’s problem like it’s somebody else’s problem too. People can only give what they’ve got. And if your team spends all day fighting your tools, they’ve got nothing left to fight with for your customer.
Now, the hopeful part, the part that I actually love, is that the fix is usually unglamorous. It’s not a culture transformation. It’s not a new set of values on a poster. Often, it’s something almost embarrassingly small, like give a support rep access to the same information that the customer can already see online.
Fix the one tool in your shop that everybody seems to be complaining about. Cut the request that takes six screens down to two. Little small mechanical fixes have a big downstream effect because you’re repairing the machine the experience comes out of. So here’s your homework, and this costs nothing.
Before you approve another customer experience initiative, run this two-question test on your own company. How long does it take a new hire to get fully set up? And how many different systems does someone have to check to answer one customer question? Whatever friction you find in those answers, that is not an internal annoyance.
That is a preview of your customer’s day. You want loyal customers? Start with employees who have a reason to be loyal to you. You want people who recommend you? Start with people who’d recommend working for you. None of this is complicated. It is just backwards from how most companies seem to be thinking these days, which I suspect is why it keeps working for the handful that always get it right.
That’s Marginally Better for this week. If you take one thing away with you, I would like it to be this: your customer experience ceiling is set by your employee experience floor. When you raise the floor, everything above it rises with it. And if today got you looking at your own systems with fresh eyes, including your website, that’s the whole point.
When you’re ready to see yours clearly, you know where we are. Thanks for listening to Marginally Better. If you liked what you heard, do us a favor and please leave a quick review on Apple Podcasts. You might not realize this, but it really does help new listeners find the show. For behind-the-scenes notes from me and from our team, head to marginallybettershow.com or just follow the link in our show notes.
Marginally Better is a Calufrax Radio production. Our producer is Nicole Hubbard, with research by Connie Evans. I’m Joe Taylor Jr.
