Losing a single customer means you’re losing money, but what is the real cost of losing a customer?
Organizations go to great lengths and spend millions of dollars to get customers through a myriad of ways, including adverts, direct mails, and marketing calls. Sadly they throw the customers away, sometimes even without any provocation.
Organizations hardly ask themselves, how did we get these customers in the first place? If they did, they would realize that they probably marketed actively via advertisement, promotions, sponsorship and in other innumerable ways.
So losing a single customer means you’re losing money.
In its research, the Technical Assistance Research Programme (TARP) Institute in the US reported that “each customer retained by a bank for five years equated to roughly $263 in profits.” TARP further estimated that it costs five times more to get a new customer than to retain an existing one. It therefore makes sense to retain existing customers, who already know you, than running after new ones.
A summary of TARP findings indicated that about 95 per cent of people that have had bad service experience don’t complain, they simply walk away. Of this number, 13 per cent tell up to 20 people about their bad service experience. The same TARP research indicated that a satisfied customer on the average tells only five people.
Laurie Liswood, a one time assessor for the Malcolm Baldridge National Quality Award in her book Serving Them Right, gave the total cost of losing and replacing 150 customers to be $60,000. She puts the ‘full financial bottom line impact’ of a bank losing 1,000 accounts at $235,000. These are extremely conservative figures, Laurie asserts, for they do not take into account the loss in morale your staff will experience. It does not take into account the negative publicity you will get. Above all, it does not take into account the negative communication from the lost customers.
The cost of quality, or to put it in another way, the cost of poor quality, is the price you pay for continuing to run your business without paying attention to your customers. If you add the cost of quality from the different units of your company you can easily realize that you are losing money by not enthroning quality as your number one objective. Most organizations do not know the full cost of losing a customer and in their ignorance accept these costs as part of the cost of doing business. But it is not.
Phillip Crosby, in his book, Quality is Free, estimates that manufacturing companies spend up to 20 per cent of their profit doing things wrong and doing them all over again. For service companies, he estimates that the cost of quality can be as high as 40 per cent of sales revenue.
With this awareness in mind, get to work. Find out how many customers you are losing. Find out how many customers are not committed to you. Find out those that are indifferent to you. Find out the cost to you of losing these customers. If it costs you so much, does it make sense not to be concerned?
About the Author
Paul Uduk is the CEO of Vision & Talent International, Nigeria’s leading customer service learning and performance consultancy. His best selling books include Bridges to the Customer’s Heart, and The Gods of Quality Strike Back.