The cost of bad service


Like many others, I’ve had my fair share of bad service. What makes it frustrating is when a contract locks in so you’re attached to the bad service. On the other side of my frustration, I realised that its not so bad for me since I only pay once for the bad service, and keep making them redo it till they get it right.

On the other hand, my really terrible service provider has to bear the costs of the extra work. I wondered whether they had noticed the spike in their operating costs and if they cared to enquire what the cause was. If they had, I think they’d see that the cost of doing business hadn’t gone up more than the cost of living, what had driven their costs was the extra materials needed to work on one area.

Let’s take the installation of a door hinge; if they damage the door in the process, they need to buy the door and additional hinges and anything else they may require to get all this fixed.

Now can you imagine budgeting for this? Clearly they wouldn’t but what they might do is just take that as an indication to increase their costs to clients, which makes them uncompetitive. Ultimately the unhappy clients and the price sensitive ones all walk away and tell anybody who’s willing to listen.

As a business owner, you’ve worked really hard to get this client and invested a lot to secure their business, yet in an instant they can walk away from your business due to bad service.

To quote Subir Chowdhury author of The Power of Six Sigma, “…preventing mistakes can make you profitable.” The corollary is simple, mistakes cost you money.

How much bad service really costs, appears to be something that organisations aren’t always cognisant of particularly once they become big in size. The bigger they are, the more constant the wastage tends to be.

In 2011 American Express did a survey to determine the value of bad service in nominal terms. Their findings were that $338.5bn is the cost of bad service per year in the world!

CMTA, a customer experience and service quality improvement firm conducted research on what the effect and cost of bad service on the bottom line of a business is. Their findings were;

As satisfaction levels drop, loyalty drops fasterThere is a significant drop in loyalty between “very satisfied” and “somewhat satisfied” customers – sometimes as much as 50%. A dangerous policy in many organisations is to ignore this fact and simply add together the percentage of “very satisfied” and “somewhat satisfied” customers to get a “better satisfaction score”.

Problems drive customers away
Customer loyalty varies from one industry to another but there is typically a 25% drop in loyalty among customers who experience a problem. In revenue terms this can be the equivalent of losing some, or all, of the revenue from one in every four customers who have experienced a problem.

More customers have problems than you think
For many organisations, the only measurement of problem-experience comes from their complaints department. Research shows that as many as 50% of your customers may actually be experiencing problems, even though only 5% of those may complain to your complaints department. As many as 95% of customers who experience a problem may say nothing to you at all.

Unhappy customers spread the word!
CTMA’s research confirms that customers typically to tell twice as many people about a bad experience with customer service than they do about a good one. Depending on the industry, between 5 and 10 people are told about a bad experience. Today, the dangers of negative word-of-mouth have been greatly amplified by the Internet and the power of social networks.

Effective customer service and response pays
CTMA’s research also confirms the importance of effectively responding to customers when they do complain. Customers can be very demanding but, with an effective response, it is still possible to obtain a more loyal customer afterwards – than you had before they experienced the problem!
(Counting the cost of customer experiences working paper by By Paul Linnell)

When it comes to bad service, I keep in mind what a friend recently told me. She said that people are only as loyal as their options.

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