How to Show Your Finance Department the Value of a Good Customer Experience

Convincing your finance department to invest in a better customer experience can be challenging. They often label investments in service training, hardware, and the latest service technology as “nice-to-have.” Or, sees your service department as a cost center (i.e. non-revenue producing). However, building customer loyalty is not only dependent upon your product, and price, but also on the overall customer experience.

This is where many leaders struggle: explaining the financial value of investments in customer service. To get investment support you must show real financial return. Here are a few points to get you started.

First, it’s important to understand the impact of bad service. Five9’s Customer Service Index found 77 percent of customers will not do business with a company that provided a bad customer service experience.

This survey (and many others with similar findings) tell us that customer experience done wrong is a huge risk to your bottom line.

Let’s apply some numbers — finance departments love these — to the risk to illustrate the importance of the customer experience:

Consider 24/7 Wall St’s “Customer Service Hall of Shame.” T-Mobile was ranked 12th in the Customer Service Hall of Shame. With a whopping 15.7 percent of their customers rating their service as “poor.”

Knowing that 77 percent of poorly serviced customers will not do business with a company again, we can calculate the percentage of lost customers. Put another way, if 15.7 percent of T-Mobile customers rate their service as “poor,” we know 77 percent of those customers will leave. Meaning T-Mobile’s poor service just cost them 12.1 percent of their customers.

On the other hand you have Amazon. For two years Amazon has been the best customer service company in the world as measured by 24/7 Wall St ‘Customer Service Hall of Fame,’ which scored “excellent,” “good,” or “fair” in ratings from 98.4 percent of its customers (only 1.6 percent said “poor”). If you apply the same calculation as we did to T-Mobile, Amazon will lose only 1 percent of their customers due to poor service.

Both companies can make up the difference by acquiring new customers, but T-Mobile will start with a much wider gap to fill and will need to perpetually acquire new customers until they close the gap (and fix the problem).

Now that you know the impact of poor service, you can calculate the financial cost of losing customers. This is as simple as taking the average value of a customer and multiplying it by the number of lost customers.

Here’s an example, using hypothetical inputs:

A. $5,000 — Average Revenue Per Customer

B. 10,000 — Total Number of Customers

C. 10% — Percent of Customers who rated Customer Service as “Poor”

D. 77% — Percent of Customers who will stop doing business with your company (per Five9’s CS Index)

Using the inputs the equation is as follows:

Once you have the cost of bad service, simply factor in the cost of the training or technology that enables improvement. Using the above example, if you can reduce poor service ratings just 1% you can save as much as $385,000. If the training or technology investment costs less than the savings, then you now have a valid business case for your finance department. In addition, this equation does not include the upside of improving your Net Promoter Score (NPS) and other brand metrics that would show an increase in brand perception and value, positive tonality and more.

While you may not always get the budget to move forward, this approach should help you put a number on the cost of a bad customer experience. Ultimately your finance department, leadership, and organization will appreciate you showing the financial value of service investments and will be more likely to support your future initiatives.

*Excellent, good, fair, and poor percentages are from 24/7 Wall Street’s 2016 survey. 2017 raw data was not available at the time of this writing.