The Financial implications of Poor Customer Service

Ever thought how much that lost sale or shoddy work cost you?

Studies show that for every one customer you lose, you lose nine other directly.Further studies have shown that those 9 affect a number of other customers directly and indirectly, so that the ratio changes from 1:9 to 1:81.

Thus for every lost sale the potential is magnified by 81. After all people talk! They tweet and update their social statuses.

j04331312.jpgLet’s convert this into a retail example. I once ran a workshop with a large retailer that went like this: I asked the managers what the average lost sale a month amounted to?

They replied about R 2000 ( South African rand) I then asked them to determine in their groups how many sales where lost per month on average per branch. They cited three sales on average due to poor stock selection, late deliveries, price and other relevant reasons.

I then took the average sale amount and multiplied it by the R2000 = R6000 per branch per month.

This organisation has a few hundred branches. Now you can go and work out the amount.But do it for the two ratios: 1:9 and 1 :81.

The implications are immense.

Lost sales do not only cost you direct revenue it also contributes to creating an impression of the organisation – a reputation that will affect your income and potential revenues for months and years to come. Lost sales for any reason needs to be investigated BUT most of all something needs to be done about it.

If the problem is late deliveries, then something must be done about it. If investment is necessary to improve systems then it should be applied.

The economists call it opportunity costs. Sometimes we skimp, only to suffer later on.

Often we do not spend the funds to improve the capacity of our people or to address the lack of adequate communication in the organisation.

Or as someone once said: “It is not a question of not training. It is a question of how much it costs not to train!