The Value of Customer Service: A 5100% ROI Case Study

Hands in a handshake

Service is worth more then you think.

Good service is good business. If you don’t know the value of great customer service, you might be holding your business back. I don’t mean only in customer satisfaction; I’m also talking about profits. Great service equals great profits. Consider the following experiment that Arthur Hughes of The Database Marketing Institute recently related in his article How Customer Service Builds Loyalty and Profits. 

I’ve published this before on a old website of mine, but I think it could do a lot of good here. Originally, this was two separate posts, but I think they work much better put together.

The Setup

  • The top 1200 customers of a building products manufacturer were divided into two equal groups, one control and one test group for the six month experiment.
  • The control group was treated the same as the rest of the company’s customers–service representatives waited for customers’ calls and gave them good service when they called
  • The test group of clients were each assigned one customer service specialist and one building products engineer for the duration of the test. Each pair called every decision maker, influencer, and user they could find in each company and used relationship building tactics:
    • Asking about customer needs
    • Following up on bids and quotes
    • Scheduling product training
    • Reminding people about pricing specials
    • Giving product comparison information
    • Giving new product information and samples

The Results

Compared to the six months before the experiment:

  • The test group made 12% more orders
  • The test group made orders that were 14% bigger
  • The control group made 18% fewer orders
  • The control group made orders that were 14% smaller

After the six months, the test group brought in $2.6 million more than the control group. The experiment’s cost was $50,000. The return on investment was $2,550,000 or 5,100%! Clearly, there is a great deal of value that can be captured through better customer service.

Are Consumers Willing to Pay More for Better Service?

This data isn’t just limited to the building products industry. Echo Research, in a commissioned annual report entitled the 2011 Global Customer Service Barometer, found consumers were willing to pay more for better customer service.

  • 70% of consumers in the US were willing to spend more for companies providing excellent service, an increase of 13% over the previous year.
  • Globally, consumers in every market surveyed were willing to pay more excellent service.
  • Not just a recent trend, 73% of American consumers have spent more with a company because of a history of great service experiences.

Granted, this data can’t tell the whole picture for every single business. However, your business can always do better. The potential benefits are huge. The researchers found that 42% of US consumers felt businesses were being helpful, but weren’t going the extra mile to keep their business. 22% felt companies take their business for granted. And the most sobering statistic?

59% of consumers would try a new brand or company in order to get better customer service. That’s more than half of your customer base willing leave if better service can be found at a competitor.

What the Worst that Can Happen?

82 percent.

That’s the percentage of consumers who have stopped doing business with a company as a result of a negative experience.

85 percent.

That’s the percentage of consumers who say they would be willing to pay more over the standard price in order to ensure a superior customer experience.

These numbers come from Harris Interactive’s 2010 Customer Experience Report for North America. They make sense in a personal way as well. If you’ve ever had a horrible experience with a company, you likely walked away from their business. Would you go back to a mechanic that fixed your car with duct tape and superglue?

Breaking Down the Data

According to the Harris Interactive report, many consumers are putting more thought into how they spend their money. Over half of the respondents became a customer of a company of their reputation for great customer service and 40% began buying from a competing brand because of their reputation for great service.

The report also broke down the 85% figure, showing how much more these customers would pay:

  • 76% would pay 5% or more
  • 55% would pay 10% or more
  • 27% would pay 15% or more
  • 18% would pay 20% or more
  • 10% would pay 25% or more

As an example, the report shows that the US airline industry could add $10.6 billion in revenue if they were able to give a superior customer experience. This is over five time the deficit plaguing the airline industry. The consumer electronics industry could increase revenues by $16.5 billion if it provided outstanding customer service.

What Can You Do?

These statistics show how powerful a great customer experience can be in bolstering profits and growing business. The report recommends:

“Put simply, consumers want easily accessible, accurate information to make well  informed buying decisions. And they want to be respected, treated well, and have their  issues resolved in a timely fashion.”

Consumers also want responsiveness from businesses, especially on social media. The survey found that 58% of those surveyed would like the company to respond to a comment left on a social networking site, with 42% expecting a response with the day. Yet only 22% actually received a response to a comment. Clearly, businesses can do a lot more to engage customers.

The most important thing is to see things from your customers’ perspectives. What might frustrate them, and more importantly, what would delight them? 55% of consumers recommend a company because of its customer service. What customer would recommend a company that treats them like a sack of coal?

Service is important. Don’t neglect it. Service is oftentimes the biggest competitive advantage that small businesses can offer over large corporations. Play to your strengths and find success in service.

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  1. […] you think the only interactions a customer has with your company is through your customer service agents and sales? Unfortunately, there are numerous overlooked touch points where a customer will […]

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