Does Better Customer Service Mean Lower Margins for Your Business?

Many entrepreneurs complain that their customers ask for the moon but only want to pay peanuts to get it. Considering that businesses are constantly trying to reduce costs to increase profits, does spending on high-quality customer service make financial sense?

Let’s consider the following:

Customer retention is far less expensive than customer acquisition

On average, it costs approximately five times more to attract a new customer to your business than it costs to retain an existing customer. It’s costly enough to locate new customers in the first place, and every business should do whatever it takes to ensure they stay happy and continue doing business with them.

Existing customers are more likely to buy from you than new customers 

For the most part, the probability of selling to a new customer hovers in the range of 5-20%, whereas selling to an existing customer resides in the range of 60-70%. Ensuring repeat customers will have a huge impact on your bottom line.

Great customer service results in a reduction of overall problems 

By treating your customers like gold, you are sure to reduce the overall problems associated with your business, sales and the potential for any legal issues that might arise. Customers keep coming back, profits grow and employee morale increases. Social media is full of horror stories of people dealing with poor customer service.

Yet, we seldom hear the positive stories. Why is that? This is because bad news travels very fast. Warren Buffett once said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” No truer words have been spoken, yet not all businesses think that way.

Excellent customer service strengthens your brand

If you’re interested in public perception, your reputation or the strength of your brand, you absolutely have to insure a high quality of customer service. Some of the best restaurants don’t need to advertise because they train their staff to ensure their customers have a great experience. On the other hand, the lakhs that some restaurants spend on promotional activities are worth nothing in the face of a customer who has to deal with an unresponsive waiter.

Word-of-mouth advertising is the best kind of advertising that money can’t buy 

You absolutely cannot buy word-of-mouth advertising — the kind that can have a monumental effect on a business. It’s priceless. People are considerably more likely to listen to the advice of a friend than they are to heed the guidance from some online review or advertisement. Whether you’re trying to make money online or offline, great customer service will create an army of raving fans that will champion your business for you.

So, it’s quite clear that providing high-quality customer service should be one of the most important activities of any business. What is interesting is that some small low-cost tweaks in the way your business interacts with your clients can make a huge difference in their satisfaction levels.

Communicate clearly 

Clarity in customer communications is paramount. Too many companies use formal, technical or legally correct language when they communicate, which could make clients feel intimidated or uncomfortable. This makes them less trusting of your intentions. If you speak in a simple & clear manner, it invites a friendlier approach from the customer.

Always use positive language

Along with keeping communication simple, the tone of what you say matters. For example instead of writing “No refunds allowed”, you can write “We hope to offer you our best services, unfortunately, we cannot provide refunds for any purchases. We appreciate your understanding.” Training your customer service executives to speak in a friendly tone could work wonders for their customer relationships.

Take all customer complaints seriously 

A majority of customers will accept deficient services quietly but will avoid doing business with the company again. This prevents the firm from identifying problems that are causing it to lose customers. Complaining customers are sometimes a great source of information on what your business can do to improve its services. Even if you decide not to make changes due to a specific complaint, it is worth finding low-cost ways to placate the customer, as it helps to ensure you still get their business.

Reduce time taken to close on a complaint

Sometimes complaints take a long time to resolve as the executive dealing with the customer needs to refer to their senior managers to get it sorted. These delays cause the client to get frustrated. Give your frontline executives the authority to handle customer complaints in the best way they can, with a limit on how much they can spend sorting it out. The executive will be able to do a better job than the manager as they have first-hand knowledge of what the customer wants and the ability to solve the problem quickly.

Help customers help themselves

Great customer service should always be available, even when you aren’t. Using self-help systems like tutorial videos, FAQs, online manuals etc. can help your clients resolve a majority of issues without having to spend time speaking to an executive. This is a way to scale up your customer service quickly without spending a lot of money.

Learn best practices from others

There are many other companies that would have come up with unique ways of delighting their customers. Try to get insights from other entrepreneurs which you can use in your own company. Joining entrepreneur organisations that facilitate peer learning and networking would be a great avenue to get these insights. One of the most prominent entrepreneur peer learning networks in India is the Ascent Foundation, which has enabled me to gain many customer service insights from my fellow entrepreneurs.

In today’s environment, many businesses can match the quality and price of your products & services. Sometimes, providing great customer service is the only way to differentiate yourself from the competition.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.