The Real Cost of Bad Customer Service (And How to Avoid It)

The Real Cost of Bad Customer Service (And How to Avoid It)

Bad customer service costs businesses $338 billion in revenue every year, globally. That’s the real cost of bad customer service.

Bad customer service costs businesses $338 billion in revenue every year, globally. Click To Tweet

Even if that number is off by a few billion, the bottom line is this:

Bad customer service will cost your business money. Lots of money. Period.

Without amazing customer service, you’re going to fail in two ways…

  1. Your customers won’t recommend you to anyone.
  2. Your customers won’t come back.

That’s why providing top-notch customer service (and avoiding bad customer service) is one of the most impactful things you can learn today for your business.

In this post, I’m going to explain what bad customer service looks like, which metrics you can use to gauge your own service, how bad support is costing businesses money, and action steps you can take right now to avoid those pitfalls.

Let’s get started.

What is “Bad” Customer Service, Anyway? [Key Metrics]

First things first: What is considered “bad” customer service? In fact, what’s “good” service? How can you gauge and measure that concept?

The real cost of bad customer service.

Here are some customer support metrics to look at, with a few industry averages to help you gauge your own performance (if you’re hungering for more, the last section of this post gives action steps to improve these metrics):

Disclaimer: While I give a few benchmarks for “good” and “bad” customer service key performance indicators (KPIs), what really matters is that you’re comparing your numbers to your own numbers. These metrics vary immensely across industries. Use them as a rough guide, but remember to focus on competing with yourself, rather than everyone else.

Time to First Response

How long did it take you to initially respond to your customer’s question?

“Bad” average first-response time: 24 hours for email, 1 hour for social and live chat.

“Good” average first-response time: 8 hours for email, 30 minutes for social and live chat.

Customer Service Metric: Time to first response.

First response times are important because your customer wants to feel that you know about their problem and are working to solve it.

While 24 hours is what’s expected, beating that time is a requirement to stand out from the competition.

After all, you want to exceed expectations, right?

If your first response time is too high, consider setting a goal for a minimum first-response time. If you’re struggling to meet this goal, you may need to hire support staff.

No. of Interactions to Resolution

How many responses did it take until you solved the customer’s problem?

Good & bad average no. of interactions: While the average varies a lot, the ideal number of interactions to strive for is simply one. You provide a single response that solves to closure. No back and forth and everyone is happy as a clam.

Happy as a clam

If your average number of interactions is increasing (in comparison to your past numbers), that could be a sign that customer queries aren’t going to the right person (if you have multiple people on your staff) or that the customer has to give too much effort to get a response.

If you have a high average, consider setting a goal to lower the number of replies to solve customer problems.

This could entail:

  • Providing more detailed answers.
  • Getting support questions to the right people faster.
  • Fixing common problems to eliminate inquiries entirely.

A personal example from the Formilla support team

Here at Formilla, we make a habit of asking a few boilerplate questions to hone in on a problem up front, without piece-meal Q&A causing back and forth. We average 0.8 responses per ticket to resolution (it’s less than 1 because some tickets are just informational or test submissions that we just close).

For example, if it’s a technical issue, our questions entail:

  • When did the issue occur (date/time/timezone)? (This helps our support team research logs to find a problem, regardless if it’s the 1st rep or the 4th that needs the info.)
  • What browser and operating system are you using?
  • Has this issue occurred before or is this the first time?
  • If it has been occurring for a while, when did it first happen?
  • Can you provide the exact error you’re getting or a screenshot of the problem? (This helps us visualize the problem more quickly to provide a resolution.)

Time to Resolution

How long did it take to solve the customer’s problem?

Good & bad average time to resolution: Again, averages vary depending on the business. I highly recommend looking at your own numbers to determine a “good” resolution time.

Bad customer service resolution time and good resolution time.

A high time to resolution can signify you’re simply taking too long to solve your customer’s problems. However, it could also mean you’re putting a lot of effort into solving their problems, which can be a good thing as long as you’re not spending too much time and sacrificing other areas of your business.

If you’re facing a high average time to resolution, consider setting a goal to be more efficient in your handling of customer queries.

Efficiency doesn’t necessarily mean solving problems fast – it means looking at your process and determining where you’re underperforming, then either outsourcing those tasks or improving your process to make them easier. I’ll give some examples in the final section of this guide.

An example of when time to resolution didn’t matter at all to Zappos

Zappos is a classic example where time to resolution is less important:

“At Zappos, we don’t hold reps accountable for call times. (Our longest phone call, from a customer who wanted the rep’s help while she looked at what seemed like thousands of pairs of shoes, lasted almost six hours.)”

Customer satisfaction

How happy was the customer with your resolution?

Good average customer satisfaction: 90% or higher rating service as “great” or “good”.

Bad average customer satisfaction: 20% or higher rating service as “poor” or “horrible”.

Bad customer service versus good customer service.

I would argue customer satisfaction is the single most important customer service metric for any business, hands down.

It doesn’t matter if it takes you forever to solve a support ticket or if they take a lot of back and forth as long as your customers are happy! If they’re happy, it means they care about the other stuff and you did your job right.

It doesn’t matter if it takes forever to solve a support ticket as long as your customers are happy! Click To Tweet

If you’re struggling with poor customer satisfaction ratings, I recommend looking at your business from a bird’s eye point of view:

Is satisfaction low because the other metrics (response time, etc.) are too high? Or, is it something else entirely, like a lack of empathy from yourself or your staff?

More on this in the “provide better service” section of this post.

Now that you know where your business stands, let’s take a look at the repercussions of bad service, just to give you a little kick in the rear to take this seriously.

We asked Richard Shapiro, founder of The Center For Client Retention, his thoughts on bad customer service. Here’s what he said:

“Bad customer service can ruin every part of a business.

  1. By not providing your full attention or failing to get back to a customer in a reasonable amount of time, you are showing disrespect and communicating to the customer their business is not important.
  2. By telling the customer “no”, which also takes the form of “can’t, won’t”, etc., it destroys all customer loyalty. Telling the customer what you can do, not what you can’t do, works better. Letting the customer know you will check with a supervisor also shows them you’re trying to help them.
  3. Answering the customer with one-word responses instead of providing full explanations also conveys a feeling that spending your extra time is not worth it.

The strongest loyalty is between two people. Therefore, it’s critical that when certain associates are much better at building relationships than others, you find a way to keep them onboard. When a good employee goes to your competitor, it’s a double-whammy. Always think of the lifetime value of a customer before you say ‘no’.

The Real Cost of Bad Customer Service

Where the heck is that $300 billion going?

Let’s find out:

Straight-up lost sales (online & offline)

Have you ever tried to buy something from a company, and their poor service pissed you off so bad that you just up and left? I know I have.

Lost sales are the first way bad customer service is shrinking the bottom line. People will just leave and go elsewhere.

This is true for online businesses just as much as offline businesses. On average, roughly 80% of people will not complete a transaction due to poor customer service. That’s four out of five.

Poorly treated customers are more sensitive to price changes

Without great customer support, it’s going to be difficult (if not impossible) to charge a premium or change your pricing structure.

John Goodman, a customer experience researcher, found that the more complaints a customer had, the more sensitive they became to price, price changes, and additional fees.

What’s worse: According to John Goodman, roughly half of customer complaints (one-fourth for B2B customers) go unsaid. In other words, there are people complaining about you to everyone but you, and taking their business elsewhere. You need to listen to the people who are talking to you and ensure you fix the problem for them as well as anyone else who may have experienced it, but didn’t say anything.

In other words, there are people complaining about you to everyone but you, and taking their business elsewhere.

You need to listen to the people who are talking to you and ensure you fix the problem for them as well as anyone else who may have experienced it but didn’t say anything.

As a rule of thumb, always assume other people have the same problem as the customers who reach out to you.

You really only get one chance

58% of customers will never use a company again after a bad experience.

Unfortunately, many customer complaints go completely unanswered. When you ignore your customers, they’ll leave and talk some smack.

I’m telling you this because I’ve seen it first-hand. There are two companies I’ve worked with (who I won’t name) who completely ignored customer complaints!

It blew my mind but showed me just how badly poor customer service can hurt a business (one of them shut down, the other looks like it may follow suit).

Bad service ruins your reputation

Bad customer service is talked about three times more than good service.

Three (or more!) in every five people are likely to tell someone else about a bad experience, compared to just two in five who speak of a good experience.

Plus, they tell three times as many people about it.

Bad service means bad word-of-mouth, which means you potentially lose customers who may have purchased from you had their friend not bad-mouthed you.

It’s like the butterfly effect – you never know who you might lose.

What can you do to provide better customer service?

You understand the importance of customer service. That’s fantastic. Welcome to the in-group… We have cookies.

Now, let’s look at some ways you can provide outstanding support, allowing you to charge a premium, get better word-of-mouth marketing, and enjoy happier customers:

Set the bar high with SMART goals

First and foremost, set the bar high for your service. Write out a support mission statement if you have to. Shoot for 5-star customer service.

How? Set some goals!

In the words of management guru Peter F. Drucker, “What gets measured, gets managed.”

In other words, you’ll naturally improve what you focus on. Without focus and goals, it’s unlikely you’ll improve anything.

Great examples of customer service goals include:

  • Answering every question within 16 hours (or faster).
  • Achieving 90% or higher customer satisfaction.
  • Getting a 70% completion rate on customer satisfaction surveys.
  • Reducing the number of customer complaints by 20%.
  • Solving customer complaints within two responses (one if you’re awesome).
  • Decreasing 1st response time by 20%.

Answer every question, ticket, or complaint – and do it fast

Over half of consumers only try to contact support once.

You really do only get one chance to set things right, so make sure you answer every single person.

But what about speed? What is a “fast” response time?

I gave you 8 hours for email and 30 minutes for social as an example above, but let’s take a look at the response time of the top 100 internet retailers:

Amazingly, all of them answer support queries within about 17 hours. Office Depot only takes 48 minutes! However, they have dedicated support staff.

Answering every support question within 24 hours should be your absolute minimum goal. Keep in mind, though – customers are beginning to expect “unrealistic” social media response times of just one hour. I challenge you to give them what they expect, or better!

Keep in mind, though – customers are beginning to expect “unrealistic” social media response times of just one hour. I challenge you to give them what they expect, or even exceed expectations.

Unfortunately, this can quickly lead to notification overload…

Notification overload

Answering every email, chat, and Facebook message can get very tedious, but you have to do it (and do it quickly) to protect your reputation and ensure you hold onto customer loyalty.

To keep things manageable, write out where all of your potential support questions might come from (social, email, live chat, phone, etc.) and set up a system to ensure you’re checking them on a consistent schedule and nothing falls through the cracks.

For example, if you know people reach out to you via Facebook, Twitter, Email and Live Chat, set a timer on your computer to remind you to check these things every 45 minutes or so and answer your customers.

This keeps you from constantly being distracted by notifications so you can still be productive, while also keeping your average response times low.

Most computers have a timer app built in, but the Orzeszek Timer is a super simple, free app.

Timer application

If the timer method is too primitive for you and you have a little cash to invest, you can also use a support desk software like Hesk to keep track of everything in one place.

Finally, if you simply can’t keep up and feel buried in support requests, it may be time to hire a customer support rep or virtual assistant to take care of things for you.

Get creative

Few businesses take the time to come up with creative solutions. Simply spending an extra 5 to 10 minutes thinking about how to be different can really make you stand out.

Heck, forget spending extra time figuring out unique ideas – I’ll just give you some you can steal.

Send personalized “Thank-You” letters

With junk mail being a normal part of everyone’s lives, getting a handwritten thank-you note really stands out. Do you remember a time when you got a handwritten note from someone?

Handwritten letters are a great way to make your customers love you. Click To Tweet

The fact that you can remember it proves my point. Buffer does this extremely well: They sent me a personal thank-you note for participating in their weekly #Bufferchat – with stickers!

Letter from Buffer

If you don’t have time to write thank-you notes for every single customer, consider using a service like Thankbot.

Give random gifts

Have you ever heard of the fascinating study where waiters got higher tips when they gave customers just a few extra mints? Reciprocity is an incredibly powerful psychological trigger for getting others to return the favor.

Reciprocity is an incredibly powerful psychological trigger for getting others to return the favor.

It doesn’t take much, either. Take Buffer’s stickers, for example – they weren’t expensive, but they made a huge impact.

It doesn’t have to be stickers, either. You can send something totally random, like a branded Rubix cube or even a pack of cookies. Everyone loves cookies.

Proudly display your customer satisfaction

One way to stand out from the crowd is by proudly displaying your customer support metrics.

Basecamp (shown below) does this by telling the exact percentage of happy customers they’re getting.

Basecamp's transparent customer support stats.

Call your customers

Take the time to call a random customer just to say thank you. Ask them how their experience was with your company, how they liked your product or service, and if there is any way you can better serve them.

Almost no one does this, yet it’s such a simple and profound way to make your customers feel important, and turn them into customers for life. Plus, it’s a great way to learn about your target market and their specific pain points.

Businesses need to stop being afraid of getting on the phone with their customers! Click To Tweet

Be transparent

Being transparent should be high on any business’s list of priorities.

With an ever-evolving internet comes more intelligent customers with access to any information they need. People can smell bullsh*t a mile away (like a crappy support answer).

Plus, being transparent makes customers more likely to forgive you if you make (and admit to) a mistake.

How can you be transparent?

Tell people when you’re wrong and share your success.

If you have an audacious customer service goal, like a 97% customer satisfaction rate, share that with people along with your progress. You never know – they might help you reach it!

Want a specific example? Buffer is open about their diversity metrics in terms of who’s on their team:

Buffer's diversity metrics.

Pretty cool, right?

Treat your loyal customers the best

Loyal customers could be worth as much as 70% of your business! I think that warrants playing favorites.

Don’t get me wrong – you shouldn’t take forever to answer new or potential customers, and you certainly shouldn’t ignore them.

Instead, try to really WOW one of your loyal customers, every single day. Give them a bit of special treatment, and nurture that relationship.

WOW one of your customers every single day. You'll feel good, and they'll love you for it. Click To Tweet

Pick one of the creative methods I explained above and use it on your best customers. It really is that simple – you just have to pick up the pencil and write the note or dial that number.

Conclusion

Investing time, money, and effort into your customer service isn’t just a good idea – it’s critical to your long-term business success.

This study by Oracle found that 86% of consumers will pay more for a better customer experience.

Poor customer service is costing businesses billions of dollars every year, and it’s mostly due to laziness and a general lack of caring! Don’t let that be you.

Bookmark this page and come back to it if you have to. I know we covered a lot and it won’t be possible to digest and implement it all in one sitting.

I challenge you to really WOW one customer, every single day.

Take 20 minutes to mail a letter, send a gift, feature them in a story, or simply give over-the-top customer support.

That one customer could go on to tell 10 people, who each tell more people. Do this every day, and you’ll soon grow a reputation for incredible customer service. Remember the butterfly effect!

What now? Check out these customer service examples to get inspired and deliver better support!

Now it’s your turn: What customer service tactics did we miss? How has good (or bad) customer service affected your business’s bottom line? Let me know in the comments below!

Let us know in the comments below!

(And don’t forget to share!)

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