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As businesses heavily scrutinise expenditure it’s all too easy to forget to invest in your number one asset – your customer.

Our experience from hundreds of client organisations is that few people can answer how much it really costs to meet their customers’ needs.

Some organisations, though by no means all, understand the cost of acquisition during the sales process, but we rarely find a deep understanding of the total cost to serve the end-to-end customer journey. As the old adage goes, if you can’t measure it, you can’t manage it.

By understanding all of the costs associated with meeting a customer need, the investment and improvements required will become much clearer, allowing you to focus your efforts for maximum return.

When assessing the cost of your customer journeys, there are three key areas to understand:

1. The direct cost of acquiring and servicing a customer
2. The true cost of failure
3. Lost revenue

The entire customer journey must be considered, from very early interactions, qualification and disqualification and the costs to serve through their lifecycle.. By putting every element of the journey under the microscope, you can understand the exact touchpoints where poor experience is affecting your costs.

1. The direct cost of acquiring and servicing a customer

For many businesses, the total cost of acquiring or servicing customers is challenging to reveal. However, every element of the customer journey will leave a trail of clues which, when grouped, will reveal the real cost of doing business with your customers.

This can be hard to extract; MI systems are often not set up to provide these holistic end-to-end views.  Only by joining up the dots across the silos, from beginning to end, can you begin to understand the true cost of the customer journey.

From the internal costs of labour and technology, through to your supply chain, the bigger picture is revealed. You’ll also need to include the losses in your sales funnel here to ensure you don’t just assess the cost of the ‘good’ path but look at the total cost of acquisition.

By zooming out, you can start to see the trends and what is, or isn't, delivering value. Your goal here is to create journey dashboards, clearly showing the total cost to serve as part of a balanced set of KPI’s.

2. The true cost of failure

What happens when something goes wrong? Whether it be a tweet, phone call or email of complaint, having the right team responding promptly to avoid reputational damage carries a cost.

When you delve a little deeper, consider whether members of your product team frequently get dragged into firefighting mode to make problems disappear? Is your finance team's productivity affected by making payments to compensate disgruntled customers or dealing with fraudulent activities?

A study by econsultancy revealed that 40% of staff believe that different departments have different agendas which are stopping progress. Whilst silos are often an inevitability of scale, they need to be brought closer together and aligned to see the bigger picture.

Can you identify every person that plays a part in resolving an issue when something doesn’t work as expected? Documenting precisely who deals with the fallout, who is accountable, and how much their time is worth, will reveal a far higher cost than you may have accounted for.

3. The cost of attrition

As consumers, we have all endured a poor customer experience that not only prevented us from completing a purchase, but was also responsible for us saying the words “I’ll never buy from them again, and I’m telling all my friends.” Esteban Kolsky, the founder of ThinkJar, reported that 66% of consumers abandon companies because of poor service. You should never undervalue the cost that may be attributed to unsatisfactory customer experiences.

When examining customer attrition, there are three angles to consider.

Firstly, the cost to acquire a replacement customer and the direct revenue lost from a customers' decision to go elsewhere.

Secondly, the impact of any negative PR or detractors on your conversion rates, and the cost of this. For example the furore around exploding Samsung smartphone batteries in 2017 cost the company over $5 billion in lost sales and recalls but also wiped 19% off their stock value for a two month period at a value of $96.7 billion. While this may be an extreme example, smaller consistently poor experiences will no doubt affect your ability to convert prospects.

Finally, bear in mind the administration costs associated with a lost customer, such as closing their account.

Of course there may be other factors beyond the customer experience, like price, that could be influencing your retention rates so context must play a role. 

And what is the impact on your brand and reputation? Public perception is magnified through the lens of social media, reviews, forums and the press. You seldom get a second chance to make a first impression. Reductions in referrals and website traffic views may be symptomatic of larger customer experience issues and, while more challenging to quantify, could ultimately carry a higher value.

It’s all about profitability

Once armed with a deep understanding of these costs, don't rush into reducing them immediately. Consider the bigger picture and your long-term strategy. For each element of the customer journey, decisions need to be made around whether it delivers genuine value to the experience or simply exists to rectify issues happening elsewhere.

To create a cost-effective customer journey you need to identify the areas where profitability can be increased, whether through reducing costs, increasing revenue or doing more with the resources you have. This assessment will inform where both cost reductions and investments need to be made to achieve the singular goal of long-term profitability.

Whether B2B or B2C, your focus should be the same

Customer experience is an area increasingly familiar to those operating in a B2C environment. However, customer journey thinking is just as valuable for B2B.

Fundamentally, we all carry the same customer expectations both in and outside of the office. In fact, because the cost to manage and acquire customers in a B2B environment can be significantly higher, with a higher degree of prospecting and pre-sales activity and larger sales and service teams, the impact of losing a client is arguably greater.

Can you honestly say that your highly trained sales force is spending all their time selling rather than problem-solving? You’ll need to consider the impact of unsatisfactory journeys on their capacity and ability to sell.

In conclusion

Negative customer experiences can be catastrophic to a business of any size. In the last few months, IBM and Adobe have gone to great lengths to demonstrate how their customers are buying experiences, rather than products.

Jeff Bezos highlighted the difference between our analogue past and digital future when he said: “in the old world, you devoted 30% of your time to building a great service and 70% of your time to shouting about it. In the new world, that inverts.”

By understanding and taking action based on the three key areas of cost,you can begin to transform your customers’ experiences, which will in turn improve profitability and drive growth.

Want to talk? Contact our expert:

Chris Hallmark

+44 (0)1865 593911

 

 

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