Have you considered the money your business is losing as a result of customer dissatisfaction?
Better yet, have you taken “pen to paper” to actually do some math around what a less-than-satisfied customer can cost your business?
What you discover may surprise you.
This is a worthwhile exercise not only for business leaders and CEOs, but for your team members, as well. A level of transparency around the company financials, combined with a clear understanding of what a dissatisfied customer can cost the company, causes every person in the organization to appreciate the urgency and impact on the company bottom line, and how customer satisfaction ultimately benefits all stakeholders (business growth, employee raises, etc).
In addition to the obvious cost of a dissatisfied customer in immediate lost revenue, there are several hidden costs that many don’t consider. The real impact over time can be 20-50 times the actual immediate lost revenue.
Consider the following:
1. Lost revenue on repeat purchases.
Depending on your product or service, a customer may have the opportunity to be a repeat buyer of the product or service. Consider the average customer life in your company and average number of repeat purchases. This value should be factored into your calculations.
2. Lost revenue on upsells.
Chances are, your company offers a core product or service with the opportunity for customers to purchase upsells or cross-sells. Over the average life of a customer with your company, consider the average number of upsell and cross-sell purchases. Factor this value into your calculations.
3. Lost revenue due to lack of referrals from that customer.
How much of your business is a result of referrals from existing customers? If you don’t know that figure, you should. On average, how many people does a highly satisfied client refer to you over the relationship lifetime with your company? Of those referrals, what is your average close rate? Once you’ve determine that, make sure you factor in repeat purchases from referrals, as well as upsell and cross-sell purchases from the referrals. In doing this exercise, you can quickly see how the cost of a dissatisfied customer can grow exponentially very quickly.
4. Lost revenue due to negative word of mouth.
Your best case scenario with a dissatisfied customer is that they cancel or leave quietly. However, this often is not the case. In today’s age, people take to social media to vent about poor experiences with businesses. Believe it or not, this isn’t your worst case scenario (as bad as it sounds). Social media rants tend to die off over time, and often (depending on how they are handled) can discredit the “ranter.” The real harm comes in the form of an actual written negative review, which lives on over time. Negative online reviews will cost you in many ways, over many years. People seek social proof and validation for their purchase decisions – negative reviews can stop a purchase from happening, whether the prospect knows the reviewer or not. There needs to be a value assigned to potential lost business as a result of a negative review when calculating the cost of lost customer.
5. Marketing investments made that are now working against you.
Probably the most hidden “cost” of a dissatisfied customer is the marketing dollars invested to acquire the customer in the first place that are now working against you. If you know your cost to acquire a customer, make sure you include that in your calculations, along with a multiplier for the lost referrals and negative word of mouth that you must now overcome.
If you haven’t worked through this exercise as the company leader, we highly recommend you do. Don’t be afraid to involve your team in the exercise. It’s eye-opening in many regards, and it can rally a team around service to existing customers better than just about anything else you do!
If you’re ready to take your business and leadership skills to the next level, and if you think your business could benefit from more insights like what’s offered in this article, let’s start a conversation. LXCouncil may be the perfect next step!
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