Customer service is an important part of any business large or small but this often means that companies will have to invest in people, resources and create processes. The operative term is ‘invest’ but the reality is that most companies view service as a “cost”. Customer service has probably become a “necessary cost” and treated with sceptical eyes by your average CFO. Service departments are often viewed within companies as workhouse centres that simply serve customers. Everyone focuses on topping up the bucket of sales and they forget the importance of serving customers and giving them a great experience so that they don’t leak out of the bottom. It’s often the case that the department that is contributing to the growth in base revenue for your business is often your service organisation. Sales and marketing often get the credit for revenue growth because their main function is to grow the business but a high performing service organisation can have more of an impact on service than most people realise. If customer service is an ‘investment’ then what is the financial business case for service.
It is not an exaggeration to say that most businesses struggle with understanding the financial business case for service. If you are a customer services director you will struggle with articulating the value that your service team is bringing to the organisation. If in a hypothetical scenario you are spending $5 million for a contact centre, if you can’t articulate the value this is bringing to the organisation you will be forced to trim your budget. There is a lot of pressure for customer service directors to work with smaller budgets but often they struggle to articulate the damage that this causes and the impact that this will have on customer needs in order to maximise profits. So if you’re not looking at that side of the equation there will be an imbalance in the organisation that potentially damages the customer experience.
The basics of customer service
So let’s start with the basics of service and its importance for your business. At the most basic level customer service is there to serve your customer in order to keep that customer coming back. If you’re a small business and you get your first customer all that you want to do is keep that customer and nurture them, the last thing that you want to do is lose that customer, so whatever that customer wants you seek to provide for that customer.
However when you become a bigger organisation and you have all of these customers they are a process to be handled and a cost to be minimised. This is not the right way to approach customers and customer value, so let’s look at the 3 business cases for investing in customer service.
Customer Churn and loyalty
The first business case to invest in customer service is to reduce customer churn and increase customer loyalty. It may seem odd but businesses often forget that customers have a choice in an increasingly competitive market. What happens is that big organisations will put up with customer churn because they are not dealing with customers effectively, so customers become frustrated and then go to competitors. Its alarming how many companies will establish processes that frustrate their customers and the end result is that they walk away.
If you’re a service organisation you want to measure customer churn and see the value being created for the wider business. Let’s look at a hypothetical situation for a customer services director, if you can say that of the 1 million people that spoke to your team 75% of them stayed with us, you could look at that and compare it to the churn rates across the whole organisation. If we then compare that with the rest of the organisation you can start to show the difference that the service team is making for the business. Let’s say the rest of the organisation is performing at 65%, so now we know that 10% of the people that get in touch with the service team are more likely to stay with your company. This is normally because of a good interaction.
If you’re a customer service director and you have these numbers in your hands then you have so much power in the business. You can then argue that reducing costs to your service will affect the customer experience and we can monitor the loyalty rates drop because of bad service. If you’re a big organisation and your losing 5% in customer loyalty, then that adds up to be a lot of money to an organisation.
Increasing word of mouth sales through service
The customers that stay loyal to your business then become brand advocates for your business, so this is where the net promoter score (NPS) comes into effect for the business. In its simplest terms all that you are trying to find with your NPS score is are your customers going to recommend your business. If you’re providing great service for your customers and providing them with great experiences, then the result is an increase in word of mouth sales. It is estimated by Nielsen and Forbes that US$6 trillion of annual consumer spending is due to word of mouth sales. In addition to this it is estimated that 90% of people are more likely to buy from a brand recommended by a friend. The second business case to invest in customer service is the importance of word of mouth sales.
The real value for the business is to identify how many people came in to the organisation because of word of mouth sales. For most businesses they are aware that customers are coming in as a result of word of mouth sales, but they often struggle to quantify the figure. The ability to measure word of mouth sales is important because this is worth money to the organisation. This is one of the reasons that we developed our In-gage app to help service departments and businesses measure the sales that come in as a result of word of mouth recommendations. When businesses are able to remove the guesswork on word of mouth sales then the attitude towards service starts to change. Instead of a ‘necessary cost’ it becomes a ‘critical investment’ for the success of the business.
In our experience we have seen companies move from 35% of sales from word of mouth to 65% of sales from word of mouth. The growth that we saw coming from this company as a result of viral word of mouth activity was simply phenomenal. One of the benefits of the In-gage salesforce app is that it allows businesses to track word of mouth sales. This allows companies to take the guesswork out of word of mouth sales and monetise the value of service.
Creating efficient service delivery
Then the third business case for investments in service is efficiency. As a customer services director you are always thinking about how many people you need to serve your customers effectively and the best approach to serve your customers. There are a number of ways to approach these issues, one is speed. Some businesses will decide that the best approach to serve customer needs is to get things sorted faster. They will then create processes and invest in systems aimed ensuring that customers are dealt with speedily.
The problem with getting people to do things faster is that you are reliant on KPI’s such as average handling time (AHT) that may get things going faster but the impact could be detrimental to the customer experience. The last thing that you want is an agent that has a stop watch seeking to solve their customer inquiry in under 3 minutes. In the worst scenario you get an agent that deliberately drops the call to ensure that their stats are maintained but the obvious effect is that the customer experience is poor. Then there is having a team that is able to look at the systems and processes and looking at what’s working and not working. The team would then propose changes aimed at creating efficiencies in the business.
The last one is the training and education of the team. Are they able to answer the questions effectively for customers the first time around? We often find that in contact centre of serving 100 customers, we find that 25 of those customers are just calling in because their issue wasn’t resolved the first time basis. If your team is not trained properly then the quality of your service will be lowered. As a business it makes sense to focus quite hard on educating and training staff to be able to solve all problems for customers. Then related to this is the issue of employee churn. We have seen contact centres with 100 percent churn rate and the best we have seen is 12% employee churn. If you can get a culture of people staying in the business, then the training sticks with the employee and you have greater efficiencies.
It is important to remember the business case for service because it transforms your customer service department from a service to an investment. If your service team is focused on measuring and reducing customer churn, measuring word of mouth sales and improving efficiency then you are on the way to proving the financial value of service to your wider business.