By: Turaj Seyrafiaan
We all have heard that Customer Satisfaction is important and of high value to the business. But what does that mean? What is the true value of customer satisfaction? A 2017 study indicated that poor customer service is costing US businesses $62 billion annually. That’s up $20 billion since 2013! This shocking, even frightening statistic comes to us from our friends at NewVoiceMedia.
But what about good customer service? Is there a difference between ‘satisfied’ customer versus ‘very satisfied’ customer? Let’s take look at a rather typical case.
A couple of weeks ago, on a business trip, I asked my client for a recommendation for a restaurant. Without any hesitation, he gave me the name of a restaurant that was about a 10-minute drive. He said: “This is a good restaurant with good food and an excellent customer service”. And to prove his point, he added that he had gone there many times, had taken many colleagues there and always recommended it when asked for a local restaurant (3 times in last month alone). He also mentioned that if he did not have another engagement, he would have joined me. I decided to follow his recommendation and go to that restaurant and after having my dinner (had to wait for a table), I understood what he meant! Being a consultant with interest in customer service, I went a step further and asked a few tables how often they visit this restaurant and what they thought of the service (a very rough customer survey).
Back in my hotel room that got me thinking, “How much business did this one very satisfied customer bring to this restaurant?” and “What was the overall value of customer satisfaction for this business?” I started working on a few numbers and eventually came up with a reasonable model. I divided the effect of customer satisfaction into 3 categories.
The Effect of Customer Satisfaction:
1. Repetition (Increased Frequency):
The very satisfied customer comes back again and again. The more satisfied the customer, the more frequent he comes back. My rough survey indicated that about 50% were frequent customers (12 or more visits per year), 25% were repeat (2 – 3 visits per year) and 25% were new customers (such as myself).
2. Wallet Share
The very satisfied customer purchases more and spends more, giving the organization bigger share of the customer wallet. On that night, almost every repeat customer was having dessert after their dinner. It appeared only a few of the new customers were having desserts, myself being an exception (of course the desserts were delicious – I tried!)
The very satisfied customer recommends the business to others as my client did. My survey indicated that all new customers were there based on someone’s recommendation. There is nothing better than free advertising!
Calculations and Relation to Other Industries
Using this rough model, I calculated that a 1% drop in customer satisfaction index (3 tables out of total of 300, rating their experience as ‘satisfied’ versus ‘very satisfied’), would cost this restaurant over $200,000 a year in gross revenue (almost 4% according to my calculations). Now, I don’t claim that this model is absolutely accurate but I think that the conclusion is reasonable. There is no doubt that there is a significant difference between ‘very satisfied’ and ‘satisfied; customers. The real question is, “How much a difference does it make” and “is it worth the investment?”
Applying the model to other industries is not much different. Obviously, the ratios and figures are very much dependent on the type of business, the purchase cycle and the current level of customer satisfaction. Sometimes such decisions are made once every 3 or 4 years (think about technology installation) but then the value of each purchase is much higher. In addition, the overall relationship would be nonlinear (diminishing rate of return) but within certain short range, it can be assumed to be linear.
The overall message here is that corporations, and executives who run them, have always agreed that customer satisfaction is important. In many cases however executives are not willing to invest in customer satisfaction or even change their culture to make the organization customer-centric. For instance, how many corporations have a senior executive in charge of customer care? Taking a deeper look at the operation and creating a financial model (even a rough one) brings clarity to the decision-making process and convinces organizations to invest in what is, and will be – the most important factors to their survival, customer service, and satisfaction.
Please Contact ApexCX for all your customer experience needs.
Oct 3, 2017