The Hidden Costs of Bad Customer Service


Businesses can expect to encounter occasional service problems with their customers. It is estimated that U.S. companies lose $83 billion each year due to bad service. Some of the losses are obvious like giving refunds and losing the sale. Other costs may be less obvious but have longer lasting and often more significant impacts.

Consider the example of a company that marketed and sold its products and service as the best in the industry. The company had production problems for two consecutive quarters and couldn’t deliver on those promises. Customers received extremely bad service. The hidden costs of the bad service will be felt by this business for several years to come.

Internal Conflicts

The company’s marketing department portrayed the company as the best in the business with the finest products and the highest level of service. Sales promised the finest products and best service. When operations couldn’t deliver, fingers pointed internally and adversarial relationships developed between departments. The company now has to spend time and resources to rebuild relationships and teamwork within the company.

Employee Satisfaction

These internal conflicts and haphazard attempts to resolve issues led to poor employee morale and the company is experiencing higher than usual employee turnover. The costs associated with hiring and training are significant. In addition, employee satisfaction is a leading indicator of customer satisfaction. If employees are not satisfied with their workplace, it will negatively affect customer satisfaction as quickly as within one quarter.

Sales Process

Existing customers are one of the richest sources of new revenue. According to Marketing Metrics, the probability of selling to existing customers is 60-70% versus 5-20% for new customers. For the next six months, the company sales team will be doing damage control trying to keep customers rather than growing sales. Customers will not likely buy additional products from them and they expect to lose up to 10% of their formerly loyal customers.

These same hidden costs can affect businesses of all sizes. So when customers experience problems with your business, acknowledge the issue and quickly resolve the problem. Resolve a customer complaint in their favor, and they will do business with you again 70% of the time. Take the time to fix the internal policies and procedures to ensure the problem doesn’t reoccur.

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