Objective:
Most business owners know that customer service is important but don’t fully understand its impact on their bottom line. Many view customer service as a cost center—a nice to have rather than a growth investment.
This article aims to clarify the financial impact of customer service on your bottom line, helping you make more informed decisions about where to invest your time and money.
Table of Contents
Customer service impacts four key growth KPIs in your business:
> Customer Lifetime Value (LTV)
> Conversion Rate
> Average Order Value (AOV)
> Lead Generation Through Referrals
We will explore the impact of both excellent and poor customer service on each of these metrics.
Customer Service Impact On Life Time Value (LTV)
The primary role of customer service is to ensure that every interaction a customer has with your business is exceptional. Beyond offering an excellent product, this is the most significant way to improve your customers loyalty and in turn their lifetime value (LTV).
Winning the battle but losing the war
However, many brands make the mistake of focusing on the value of individual orders rather than the overall value of a customer. This leads customer service teams to make short sighted decisions that can result in poor customer experiences.
Winning the battle on an individual order but losing the war by alienating customers is a common pitfall. When a customer has a negative experience, it's not just a single order that's at risk, but potential future orders and referrals as well. In fact, 92% of customers who have two or more bad experiences will never return, and 52% will move to a competitor after just one bad experience.
Creating Life Long Customers
Conversely, when customers have a positive experience, over 80% report they are likely to make another purchase. Therefore, when making customer service investments and policy decisions, ensure you do it with the focus on your customers' lifetime value (LTV) rather than single orders.
The benefits of investing in customer service extend far beyond immediate sales. It not only saves revenue that could be lost to competitors due to bad experiences but also increases retention from great customer experiences. Creating loyal advocates who will not shop elsewhere.
Studies from Bain & Company have found that increasing customer retention by just 5% can boost profit by more than 25%. Additionally, retaining existing customers is cheaper than acquiring new ones. This makes customer retention an essential component of profitably scaling your business.
Customer Service Effect on Conversion Rate
Another critical role of customer service is helping customers find and make informed decisions about your products.
Turn Queries into Conversions
On average, 33% of all eCommerce support tickets are presales questions about your products. Shoppers who use live chat are six times more likely to convert and 12% of all support tickets lead to a sale.
Not only that but great customer service increases the odds of positive reviews. Providing a huge amount of social proof for new customers learning about your products and brand for the first time. 66% of consumers trust online brands with many positive reviews.
It Only Takes One Bad Experience
"It takes 20 years to build a reputation and five minutes to ruin it." - Warren Buffett
In contrast, poor customer service doesn't just lead to losing a single customer or sale; it can cause irreparable damage to your brand. 86% of online shoppers hesitate to buy if a business has too many negative reviews. With the rise of so many influencers, a single bad experience from the wrong person can devastate your brand.
This means that if your business has below average customer service, you are sitting on a ticking time bomb. With 93% of customers reading reviews before purchasing online, every negative review chips away at your conversion rate. Until one day, you upset the wrong person, and your brand is dragged through the mud online, crushing your brands reputation.
Customer Service Effect on Average Order Value
Great customer service is not just reactive, such as answering customer questions. It's also about being proactive, helping customers solve problems they didn't even know they had. Doing so by providing personalised advice and product recommendations that will add value to the customers.
Turning Customer Insights Into Sales
According to Forrester Research, 49% of people have bought high value or additional products when receiving personalised service. Furthermore, American Express found that 70% of customers are willing to spend more when they receive excellent customer service.
By investing in customer service tools like Gorgias, we are able to gain even deeper insights into our customers, from the products they have browsed and what's in their cart to previous purchases. Allowing us to make more personalised recommendations and offers. Enhancing the overall customer experience and increasing how much our customers spend.
Generating Referrals Through Customer Service
Referrals are a critical part of profitably growing and scaling any DTC brand. Providing exceptional customer service is the most effective way to get customer referrals. As the cost of acquiring new customers continues to rise and with trust in brands at an all time low, this has never been more important.
Happy customers are the best sales team you will ever have.
According to Esteban Kolsky, 72% of customers who have an extraordinary experience with a brand will tell six or more people. With referred customers being 3-5 times more likely to convert than those from any other marketing channel and spend an average of 16% more.
From Customer to Advocate
However, good customer service is not good enough. While meeting customers' expectations might keep them as customers, it won't inspire them to refer you to others. To achieve that, you must exceed their expectations and create "magic moments" that wow them into sharing their experience with friends and family.
Creating a lifelong customer and brand advocate who will enthusiastically share their positive experiences and discourage people from using competitor products.
"Never waste a crisis" - Winston Churchill.
Remember that every customer complaint or issue is an opportunity to create magic moments and build deeper relationships with your customers. In fact, many of your strongest advocates will be customers who initially had an issue but were blown away by their experiences with your customer service team as they resolved the issue.
Next Steps
Hopefully, this article has helped you better understand how investing in customer service impacts your business. By retaining customers longer, increasing your conversion rate, and the value of your orders, while bringing in new customers to your brand.
The next step is to uncover where you can invest in customer service to get the highest return on investment. To help with this we have partnered with Gorgias to provide a Free Audit for your customer service team.
Get a Free Customer Experience Audit from our partners at Gorgias
Find out exactly where the blockers are in your customer service process, streamline your operations and evaluate the overall experience for your customers.
