The Real Cost of Losing a Customer

texting 300x186 The Real Cost of Losing a CustomerThey Now Tell 500+ Friends Before They Get to the Parking Lot

One of the most fascinating things that I witness from time to time is when a company can’t handle the discerning customer. This is someone who provides feedback and complains and if the substance of the feedback was actually listened to— it can dramatically help a business improve. Often with just a few tweaks, suggested by the customer, a business can actually save the company time, money and keep their brand promise intact.

Tragically, the feedback of a discerning customer can backfire if the company tries to defend vs. fixing the problem. The business “fires” the customer inadvertently. I think of a recent instance of a dissatisfied customer making some appropriate (and factual) comments to another customer. The owner of the business learned of it defended their position, and terminated the relationship without giving any credit to the substance of the feedback, which pertained to broken equipment and lack of cleanliness. Unfortunately for the business owner, the cost of firing this customer resulted in the loss of 9 other customers also. Someone with over 500+ friends will have told everyone about the interaction before they got to the parking lot.

When a business gets a customer complaint, it’s likely that there are a hundred more with the same opinion, so best to do something about it. The hundred customers that you have not heard from – talk behind your back and now online to hundreds more at a time. Have you ever heard the saying “The Customer is Always Right”? In most cases, they are. I do have a Caveat: If there is an act of violence or someone’s safety is in jeopardy, get immediate assistance; you are probably justified in firing (losing) the customer.

Let’s look at the cost losing a customer by contrasting it to the “life time value” of a customer. The following formula does not include the cost of acquiring a new customer. Here is the sample cost breakdown of losing a customer from the scenario I described above.

    Lifetime Value of a Customer

Scenario: a fitness club, at which equipment maintenance and cleanliness have deteriorated. Membership revenue is generated monthly (/mo).

LOSSES: 1 customer leaves and convinces 8 friends to leave.
9 memberships x $35 /mo = $315 /mo x 12 months = $3,780
5 years (expected length of a typical membership) = $18,900

Firing “one customer” cost that business almost $19,000 in revenue. Do you think it will fix equipment and improve cleaning to retain other customers? How long do you think a company will be in business with these kinds of losses?

Lesson: If you own or help run a business, you better pay close attention to how your customers feel. Failure to do this will be the loss to your business in (1) revenue when the customer walks and (2) potential revenue when they then tell the world. (3) Not to mention potential loss of the entire business and personal loss of income for the owner, all the employees (jobs), and all your suppliers! Ouch!

Granted, sometimes a customer is not your correct demographic. For example, someone who normally travels First Class will have a tough time traveling on a discount carrier, and you’ll never please them no matter what you do. In cases like this, there is a way to “inform” or teach customers about the different aspects of your business so they understand why something is happening. Refer to my other blogs for the “Knock it Off Nicely” technique where you have no choice but to deal with a situation without causing hard feelings.

This blog addresses the feedback that a customer provides to a business that is “right” and could dramatically help identify vulnerabilities and opportunities to improve. It’s always best to REALLY listen. This is where training staff becomes vitally important; it is no longer optional for companies if they don’t have the skill to handle difficult or unhappy customers. Unfortunately, I often see an employee or even a business owner trying to defend “their” company because they are personally vested. They take any slight or negative criticism personally and may get angry back at the customer. As you know, this just ends up in ill will for both parties. The company always loses, the customer just goes elsewhere. Meanwhile the customer is telling 500+ friends on Facebook what just happened and if the story is “juicy” enough it goes viral. Your business loses in the end.

To avoid the costly scenario of firing a customer, put better customer service practices into your business plan for daily implementation. Every business should look at how to effectively handle customer feedback, whether received face-to-face (often with frustration and anger), or through e-mail, letters, and every form of social media. Remember, it’s not just “1” complaining customer; they are simply the voice of others who are also sharing their “horror stories”. If you don’t listen and go looking for the feedback in the first place, you won’t get a chance to fix it. There is no way to stop the consequences that an unhappy customer can cause to your business these days if you are not dealing with the problems.

Go looking for feedback: create a Google alert to see what others are saying about you. This is often the BEST form of feedback for a company to follow how they could improve. It used to cost tens of thousands of dollars for focus groups and mystery shoppers; now, the feedback is at every business owner’s fingertips.

How you treat the customer effects our entire economy as well as job loss and employment rates directly within our communities and nationally. The world is now competing for our customers. If you feel it is time to bring a new or improved culture of care to get your business to the next level, don’t hesitate to contact me at: info@elaineallison.com


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