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Grow Market Share and Revenue

By Not Losing Customers to Your Competition!

The Financial impact of Customer Service & Satisfaction

Everyone has heard the expression the “The Customer is Always Right” and most everyone in business agrees until THEY disagree with their customer or get a demanding customer. In the attached pages you will see the financial impacts of not handling these situations correctly.

Customer Service and Satisfaction impacts many aspects of your business. from your overall market opportunity, your market share, revenue and sales, expenses, and last but not least your bottom line profit. In the following pages , you will see how each of these are impacted and why it is critical for you as a business owner to assure that Customer Service and Satisfaction is a key ingredient of your business operations just as are advertising, marketing, sales, and production.

A typical business loses 10% - 20% of their customers per year. Why do they leave? In general: 4% die or move, 5% no longer need your products or services, 9% were wooed away by your competition, 14% were unhappy with a product or service, and 68% of them left because they were unhappy with the treatment they received or did not receive when they did business with you.

You have the opportunity to keep over 90% of the customers that stop doing business with you by providing good Customer Service and Support!

 

Customer Service Impacts on:
Market Opportunity & Market Share

So how does Customer Satisfaction affect market opportunity? I thought that the market was the market! Well the market is the market but it may not be YOUR market!  Poor Customer Service not only reduces your market opportunity but your share of the market by driving your customers to your competition.

For example, lets take a company such as a paper distributor we will call Bad Paper Inc. which sells paper to local print shops of which there are 200 in the area. Now let us assume that Bad Paper services 100 of the local printers or 50% of the market and Good Paper Inc. has the other 50% of the market. Now lets also assume that Bad Paper’s Customer service is so bad that they lose 50% of their customers per year to Good Paper which has great customer service and they lose none of their customers.

So at the end of the first year, Bad Paper now only has 50 Customers and Good Paper has 150. Bad Paper now wants to go after more business but you now must exclude the 50 Customers he just lost from his total opportunity. So although the Market has 200 local printers since 50 of them have already decided NOT to do business with Bad Paper his market opportunity is significantly limited.

At the end of the second year if Bad Paper does not change the way he satisfies and services his customers, he will be left with only 25 customers with significant loss of revenue and profit.

Is this realistic? YES!

This could very well be your business. Virtually all businesses have a bounded market opportunity and the concept applies if it is a hundred or a million customers. You could have a sales person, a counter person, a receptionist, etc. creating customer satisfaction issues that are slowly eroding your market opportunity by creating a set of customers that will never do business with YOU again. Regaining lost share from Good Paper's satisfied customers is significantly more expensive than delighting and serving your customers!

 

Customer Service Impacts on:
Revenue and Profit

So how does Customer Satisfaction affect revenue and profit for your business? First is the obvious which is the current revenue from lost customers. But this is just the start. Each of those customers has a lifetime value to your business of several times a single purchase. Typically you could estimate a customers lifetime value to be anywhere from 5 to 10 times the revenue of a single purchase for a typical retail customer. For business customers you could easily assume a lifetime value of 30 – 50 times their monthly purchases. In the case of Bad Paper Inc. if their printers were buying $2,000 dollars of paper a month this would represent a life time value of each customer that they lost of $60,000 – $100,000 each. How much would you be willing to pay to get $60,000 – $100,000 of revenue? Why wouldn’t you also be willing to spend that to KEEP your customers satisfied and happy?

There is also a secondary affect. In most businesses, it costs $500 – $1,000 to get a new customer. So if you lose 20% of your customers and you start with 500 customers like Bad Paper Inc. you would have to spend in real out of pocket dollars $5,000 – $10,000 of your gross profits in marketing just to maintain the revenue stream that your business had the year before. If you are able to delight your customers and keep them coming back because of your stellar service, support and customer retention programs, that money goes directly into your pocket or is available to be used to grow your business. This is why great companies have a maniacal focus on customer satisfaction and service as well as a budget dedicated to customer retention and why you should also for your business.

If you use the same $5,000 – $10,000 that you would lose due to poor service to market your business to new customers you could actually be growing your business 20% per year!

Last but not least satisfied customers buy more and buy more often and decrease you overhead and expenses because they do not require the same level of hand holding, education, support as new customers.

 

Customer Service Impacts on:
Business Growth

Satisfied customers can, when approached correctly, be a continuous stream of new customers and referrals. This tends to be the lowest cost growth methodology applied by many successful companies. Where as dissatisfied customers can severely undermine your marketing programs through telling potential customers about their negative experiences with you business.

Satisfied customers can be key in helping you to uncover new revenue and profit opportunities for your business by recommending products, services, features, and enhancements that can put you significantly ahead of your competition.

Satisfied customers will give you the benefit of the doubt when something does go wrong. This gives you a second chance, which they would not do if they were marginally satisfied from their earlier buying experiences with your company.

Satisfied customers will tell you what you are doing wrong, report on what your competitors are doing right or wrong, tell the highest and best use for your products and services and help you position and market them more effectively.

Satisfied customers can be a blessing in hard times when you need a big order to pay for a new piece of equipment, to justify a new loan, and to support you in case of a disaster such as fire or flood.

Satisfied customers are the key to business growth. Your marketing budget, aggressive sales campaigns, discounting, and special programs will never be able to overcome the impact of poor customer service. So to grow you business you MUST reduce your list of unhappy or dissatisfied customers while you grow your list of satisfied customers!

 

Customer Service Impacts on:
Your Success and Happiness

So how does customer satisfaction affect your success and happiness? This seems so simple and obvious it is often over looked. Have you ever had a job where you worked for someone that treated you poorly, was unreasonable or grumpy? Where you could never do anything right? Almost everyone has! This is the profile of an unhappy customer. Days working in that sort of an environment seem to drag on into years taking its toll on you personally as well as your ability to do your job. Do you want to own a business that continually generates problem customers that you have to deal with on a daily basis and as you grow your business you get more and more dissatisfied customers to deal with daily? I think the obvious answer to this is not just "no" but a strong and emphatic "NO"! So it is clear that having a business that generates dissatisfied customers can be a drain on the pleasure and joy that you get out of your work and your business.

On the other side have you worked for someone that comes to you because they recognize you skills and abilities, makes reasonable and thoughtful requests, considers you opinions and circumstances in setting deadlines and delivery, and recognizes that you provide them a valuable product or service and that for you to continue to provide this product or service you must be paid a fair and equitable value for these products or service? We all have and if we had to choose we would all choose to work in this environment over the one described earlier. This is the profile of a satisfied customer.

You as a business owner have a choice as to which of the above you are going to work for in you business by deciding you are going to go to the max to provide great service and to have satisfied customers coming to you over and over.

Lastly, satisfied customers can become close friends or compatriots and expand personal satisfaction by extending your reach into different parts of the business community, social engagements, informal gatherings, and recreational opportunities.

 

 

 

 

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