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The Financial Impact Of Customer Service

Author errolallen
#1 | Posted: 7 Jul 2012 07:28 
Customer service is what drives the success of the any business. Some would surely say, "No Errol, a great product or service concept drives the success of any business." While that statement is somewhat true, a great product or service concept without great customer service is like expecting your beautiful garden flowers to flourish without your giving attention to them. I have often found that you don't get upper management's or the owner's full attention regarding customer service unless you provide the financial impact to the company. Customer service has a dual role as it both creates and preserves revenue. Let me explain why I believe this to be true.

Customer service creates revenue via the word of mouth avenue. When a great product or service is coupled with great customer service, your customers become your ambassadors. Their willingness to speak positively about your business leads to additional customers, thereby creating additional revenue. Recent research by the Technical Assistance Research Program (TARP) indicates that for every 10 people hearing either positive or negative "word of mouth" information, 1 person takes action. That one new customer, should they receive the level of service expected, will in turn keep the positive "word of mouth" cycle in motion. Another form of revenue creation as a result of great customer service are price increases. TARP has also studied the impact of price increases on the customer's willingness to continue to do business with companies. In a study of the banking industry, only 10 percent of survey respondents who had not experienced a customer service related problem expressed dissatisfaction with an increase in fees and charges. This means that 90 percent of survey respondents were okay with the price increases due to the level of customer service provided by their particular bank.

In regards to customer service acting as a revenue preserver, there is one question that must be answered before we continue. That question is - How much is your customer worth to your business? Whether your company is small or large, the need to determine what your customer is worth to your business is critical when calculating the amount of revenue being preserved by addressing customer service related issues. For example, if your business has 1,000 customers and the average annual revenue generated by each customer is $400.00. If 10 percent of those customers experience customer service related problems, that's 100 customers. Bear with me as we start the calculations! Now let's assume that 50% of those customers don't even bother to complain, they just simply go away. Their decision to leave without complaining represents $20,000.00 in lost revenue. What about the other 50% that do complain? Let's say that you're able to satisfy 40% (20) , 40% (20) become frustrated with your attempts to satisfy and 20% (10) remain dissatisfied. So now let's consider the repurchase behavior of those complaining customers. Should 10% (2) of the customers that you're able to satisfy after they complain decide to not repurchase, that represents $800.00 in lost revenue. In the frustrated with your attempts to satisfy group, 25 % (5) discontinue purchases with your company, which represents $2000.00 in revenue. On to the customers that remain dissatisfied after complaining - 60% (6) of this group decide not to repurchase from your company, which means an additional $2400.00 in lost revenue. The total potential annual revenue lost in this scenario is $25,200.00! Wait, there's more. Remember the "word of mouth" factor discussed earlier. These dissatisfied customers will tell others about their experience with your company. In this scenario, when you consider the 50 customers that left without complaining, add the 13 customers that complained yet decided not to repurchase, that's 63 customers who have the potential to utilize negative "word of mouth" marketing. If these dissatisfied customers tell 10 additional people about their experiences (630 people) and 1 in 10 acts on the information (63 people), there's potential revenue missed due to dissatisfied customers. Even if the new customers average annual purchases equals $300.00, you're still possibly facing $18900.00 in lost potential revenue. Don't forget about the cost side of poor customer service - the employee costs to resolve customer complaints and the material costs when rework is required to satisfy the customer. Take this example and apply your real numbers to determine the financial impact to your business. Whew! Lot's of calculations, but it's definitely worth it when it comes to determing the financial impact of customer service.

The key to preserving revenue is to: 1. Be consistent in your service delivery and 2. Encourage your customers to complain. Consistency in your service delivery leads to loyalty, less complaints and even more important, fewer reasons for the silent defections of the non-complainers. Encourage your customers to complain as this gives you an opportunity to retain their business. The example above illustrates the financial impact of non-complaining customers. Offer multiple ways to complain - at the point of purchase, on your website, via chat, 1-800 #s. Don't forget to monitor social media for comments regarding your company and respond to the complaints in a timely manner. Remember, don't take customer service for granted. The financial impact is huge!!

Author lschlyer
#2 | Posted: 9 Jul 2012 09:25 
The numbers really are staggering when you think about the actual out-of-pocket costs of dissatisfied customers. Are you familiar with revenue reclaimation services? One of the focuses of my business is identifying weaknesses in the customer service teams of our clients through call evaluation. This offers their management team opportunities to customize coaching and proactively prevent bad customer experiences. We also do these evaluations in near-real time (you mentioned the importance of responding to complaints in a timely manner). Responding to a customer quickly is beneficial in two ways: 1- it shows you are a business who *actually cares* (imagine that, in this day and age!), and will promote loyalty within your customer and a bond to your business. 2- it gives you an opportunity to save sales from the competition and gain back revenue. We have seen a trend within our customer base over the last ten years that indicates if a customer gets off the phone with a CSR without making a purchase, and is called back within 10-30 minutes by a CSR or business manager looking to overcome the customer's purchase objections and remedy the relationship, most customers will retract their initial decision and end up making a purchase. And the numbers don't lie...in 2011 our clients were able to pull back half a billion (yes, billion, with a B!) dollars in revenue that would have otherwise been lost through this method.

Let me know if you would like any more information on these CSR services or others. You can read more at www.callcap.com.

Customer Service Forum Customer Service Manager Forum / Customer Service Forum /
 The Financial Impact Of Customer Service

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