Customer Value and the P&L

This is a sequel to my last post on
Customer Cost or Care

Several people left comments, and I got even more email with opinions and questions about the real value of keeping or losing a customer, and the real cost, and P&L impact of providing care.

By the way, my husband is still in the UK,
and the bag will need to be checked one more time before I see it!

Let’s start by reviewing the things that we all know.

Getting a new customer is way more expensive than selling more to an existing customer.  Selling more to an existing happy customer is the lowest cost of all.  Having happy customers reduces your marketing costs as it refers you more new customers for free.  Having happy customers also reduces your liabilities – angry customers tell their stories more than 10 times more than happy ones.

Your customer service strategy can not be separated from
your business strategy.

Your decision on how much you are willing to invest in customer care is a big one.  It should not be seen as a peripheral or functionally isolated cost.  How you decide to treat your customers is fundamental to your business strategy.

If you don’t value keeping customers, your cost of customer care will go down and your cost of customer acquisition will go up.  Your overall costs will not necessarily do down, nor will your profits automatically go up — because reduced customer care will almost certainly result in reduced revenue.

And you will also forfeit an advantage that your competition can’t copy and the market can’t commoditize — treating your customers well.

Some ideas for the real world

I’m not suggesting that you should provide limitless service and not worry about cost at all.  Every business needs to reduce the unit cost of doing business year over year.  It is the only way to stay competitive and fund innovation.  But don’t just squeeze cost out of customer care without considering the holistic value of keeping happy customers.

OK, so that all sounds nice.  But say you manage the service organization for a company who is not focused on customer care.  You would love to provide exceptional service, but you are being told that you can’t afford it, and that margins can’t support it.  You are being pressured cut cost and to increase the profit margin of your service and support business.

Two ideas:

1. Be the voice of the “Customer Value” line in the corporate P&L.

Expose the real cost of losing a customer just so it is clear to the whole organization. Do the numbers.  What is the actual value of keeping a customer in your business?  Be the one to show the hidden costs of losing a customer.  That should drive your customer service investment.

Calculate the actual cost of losing a customer in your world.  Things to factor in:

  • Loss of new, incremental revenue/opportunity
  • Loss of opportunity to create a “lifetime customer”
  • Loss of annualized recurring revenue
  • Cost of replacing a customer – marketing cost per lead that turns into a closed deal
  • The cost of supporting the sales process
  • Cost of viral effect, how many other customers will you lose based on bad referrals?

I spend about $120/month with Verizon.  They seem to have calculated that the cost of losing me as a customer for a few years is a few thousand dollars.  Verizon has on more than one occasion gone around their standard policies to invest $50-$100 in keeping me.  AT&T on the other hand has never done such a thing, and in fact has what I can only refer to as predatory methods for squeezing more money out of people by making mistakes then pretending it is the customer’s fault, and never refunding anything under any circumstances.

It’s really important to associate a specific value with the loss of a customer.

You need to connect the dots between customer care and increased revenue, not just between customer care and increased service cost.  If you don’t you will be inclined to squeeze your service and support organization on margins independent of understanding how it really impacts your business growth and profit.

2: Improve Service without spending more money.

There are a few things you can do to improve service even if you don’t spend any more money.

1. Personally use and test your standard service processes.
Get a first hand experience of how good or bad the level of service is.  Fight your way through your voice menus or website interfaces.  You will never improve it if you don’t have first hand experience. Even things like changing the hold messages, or not selling to people more than once while you are forcing them to hold, can make a huge difference in customer satisfaction.  Bank of America is the worst at this.  They over sell at every moment, (You can’t even activate a credit card without hearing six sales pitches) and they consistently deliver dreadful service.

2. Note what you like, and what embarrasses you.
You will be surprised at how much you can improve service by changing scripts.  How about having someone say, “I’m very sorry I couldn’t help you, would you like me to email you a survey form so you can provide your direct feedback to our company”, instead of the infuriating “I apologize for the inconvenience, can I do anything else to help you?” when you haven’t been helped with the first thing.  Also make particular notes about where your level of investment is creating a negative feeling in what you experience, so you have that as data for future budget discussions.

3. Spend a shift in the call center, on the help desk regularly.
All executives should do this.  Experience personally what customers call in about and how they are treated by your processes.  Get their reactions directly.   I guarantee you will uncover broken processes, mis-cues in scripts or service books, or repetitive or chaotic tasks that degrade both productivity and service.  You can fix many things for free if you just show up and pay attention.

4. Involve the team in cutting cost without degrading service.
Offer an award each month in each region for the most creative approach to reduce the cost of providing service without diminishing customer care. You can accomplish this if you involve the people doing the work to help figure out how.  One call center realized that a significant percentage of their calls were people asking questions.  They decided to make the answers more accessible, and their call volume decreased substantially.

If you don’t give your team a chance to help solve problems, they will have no motivation to do anything other than follow the process you put in front of them.

It’s your choice

You can reduce the cost of customer service without cutting the care. It’s possible if you start with the strategic decision of providing care first, then cutting cost as a tactic, not as a strategy.

You can find Patty at, follow her on twitter or Facebook, or read her books RISE and MOVE.

Patty's Top 11 Leadership Values
Managing Energy