“But we can’t afford to spend money on communication.”

It’s understandable to be budget-sensitive, of course. But too often, this question gets overlooked: What is the cost of poor communication?

What if no one knows about your product/service?
What if prospective employees don’t know the reason they should consider your company?
What if donors don’t understand the impact of a potential gift?
What if stakeholders don’t understand a recent business decision?
What if investors don’t understand how a merger will impact them?

WHAT PELOTON AND SOUTHWEST AIRLINES TAUGHT US ABOUT THE CRIPPLING COST OF POOR COMMUNICATION

Take, for example, the safety concerns that emerged after a six-year-old child died in an accident involving a Peloton treadmill. Additionally, the company faced negative publicity from fictional portrayals of Peloton-related heart attacks in TV shows. These events led to a $439 million loss in the second quarter of its 2022 fiscal year, the departure of its CEO, and layoffs of 2,800 workers.

In October 2021, Southwest Airlines experienced a crisis that cost the company approximately $75 million. The mass flight cancellations over four days were due to a combination of weather issues, air traffic control disruptions, and staffing shortages. The financial impact included customer refunds, lost revenue from canceled flights, and unspecified "goodwill gestures" aimed at mitigating passenger dissatisfaction. This incident highlighted significant operational and communication challenges within the airline, contributing to a negative public perception and financial strain.

WHAT THE RESEARCH TELLS US ABOUT THE COST OF POOR COMMUNICATION

Poor communication within organizations has been extensively studied, and the cost to business results is significant on all fronts: retention, recruiting, sales, and employee morale. Here are some key studies and reports that highlight these impacts.

According to a report by the Society for Human Resource Management (SHRM), poor communication costs large companies an average of $62.4 million per year in lost productivity. This encompasses costs related to errors, project delays, and missed deadlines due to ineffective communication channels and strategies.

A study by David Grossman in "The Cost of Poor Communications" indicates that a survey of 400 companies with over 100,000 employees each reported an average loss per company of $62.4 million per year because of inadequate communication to and between employees. Grossman's study emphasized that poor communication can result in misunderstandings, errors, and reduced productivity, significantly affecting the bottom line.

The Holmes Report found that the cumulative cost of poor communication among companies with 100,000 employees was $37 billion annually. Poor communication was linked to increased employee turnover, decreased employee engagement, and reduced overall performance. These communication breakdowns can undermine morale and lead to higher recruiting costs as companies need to replace disenchanted employees who leave the organization.

Gallup's extensive research found that businesses with highly engaged employees outperform their peers by 147% in earnings per share. Effective communication is a critical component of employee engagement. The report also highlighted that organizations with poor communication practices have significantly lower levels of employee engagement, which leads to higher turnover and lower productivity.

In a study published by the International Journal of Business Communication, researchers found that clear and effective communication is directly correlated with higher sales performance. Sales teams with strong communication strategies tend to achieve better customer relationships and increased sales volumes, while poor communication can lead to misunderstandings, lost sales, and damaged client relationships.

Good communication has a profound impact on business performance—and although rarely measured within an organization, represents a real financial impact.

SO HOW DO I KNOW IF OUR COMPANY COMMUNICATION IS ON POINT?

Here are some things to consider:

Are the objectives clear?
Have you listened to your audience?
Are the right people involved in crafting, reviewing, and evaluating the message?
Does the message speak to things your audience cares about deeply?
Have you outlined the key message points and been consistent in how they are presented?
Is what you are saying true and transparent?
Do you know how your audience thinks and feels about the matter/product?
Have you repeated the message enough for it to have an impact?
Have you used channels that your audience prefers?
Have you crafted the message in a way that keeps your audience engaged?
Is the Call to Action clear?
Do you have ways to measure effectiveness?
Does your design elevate and inform the message’s impact?
Are you finding the gems in your analytics that can help you fine-tune your communication?
Is a method for feedback appropriate?

The art and craft of communication relies on a mix of skills, intuition, experience, and data. Knowing what to say, how to say it, and when to say it can mitigate a crisis and financial losses.

So before deciding that you can’t afford good communication, consider the cost of poor communication. Doing this before a crisis hits will put money in your reputation bank!