The cost of a lost customer is much more than most business owners realize. And their employees don’t care – because there is always another customer… or is there?
When you lose a customer because of a bad experience, the rule of thumb is that they will tell 11 people about their bad experience.
But what you don’t know is that these 11 will tell another 5! And those 5 another 1 or 2.
1st customer = 1
They tell 11 = 11
These tell 5 = 55
And they tell 1 = 55
Total number of potential lost customers that heard the bad news = 120!
The picture gets even worse when you add in the revenue and profit potential.
Let’s pretend you had a customer that spent $25 on average with you per week. That would be $1,300 a year, or $13,000 over 10 years. A tidy sum of cash…
But what if those 120 people spent the same amount with you?
120 x 1300 = $156,000 in one year or over one and half a million dollars in 10 years. ($1,560,000)
But oops. This is what you lost because that first customer had a bad experience with your company.
Are you choking on your salad yet? And what would it have cost you to smooth the matter over? Pennies in comparison.
Do you know your costs to find a new customer?
It cost about 10 times as much to get a new customer than it costs to keep one. If you have your metrics in place, then you know exactly what that is. Now take that number and multiply it by 120. Add this to your mounting costs and lost profits. Do you need a drink yet?
Now let’s look at the other side of the equation.
Lost customers means lost jobs.
There is a simple way to calculate the amount of sales needed to pay salaries.
Assume the company:
Pays 50% in taxes
It earns a profit of 10%
|
Salary |
Benefits |
After Tax Costs |
Sales |
|
$50,000 |
$23,000 |
$36,500 |
$365,000 |
|
$36,000 |
$16,560 |
$26,280 |
$262,800 |
|
$25,000 |
$11,500 |
$18,250 |
$182,500 |
A bit of an eye opener I bet. But who is on the front line? These same $25,000 people who irritate at least 2 or 3 customers … a day! Who is going to replace those lost customers? And you can bet the employee won’t be happy when you have to lay them off because there isn’t enough business.
But this starts at the top and has to trickle down. The top people must behave better than the front line people. And the front line people (reception, call in center, tellers) need the training to better serve your customers. Or you soon won’t have any…
To lost customers …
Randy Stuppard
Randy Stuppard is one of the most savvy business people that I know. He is known as "the guy who makes things happen."