Customer related costs and how to manage them (1 of many)

There is some simple wisdom about having customers. It costs 10 times as much to acquire a new customer as it does to sell to an existing one. Then, with a strange lack of gratitude, a happy customer will tell between 0 and 3 people whereas an unhappy one will tell more than 10 people of their negative experiences. These figures were created before the advent of email, Internet forums, blogs etc. so I can only assume the picture now is even more extreme.

Customer Support

As part of the cost of having customers, support can make a big difference to the profitability of companies like ISP’s, ASP’s, software companies – in fact most companies that are driving towards low revenues per customer. These companies need to focus on operational excellence and hence low cost customer support.

A helpdesk costs around $40 per hour in the UK (substantially less in India of course) and so a five minute call costs $3.50. If I said that a good ISP might 1 in 64 customers ringing up each month then the costs start to mount.

The main area that people often find tricky is billing. Startups have to rely on third parties to do this for them (e.g. WorldPay) and hence need to talk to them about queries from customers. Ventures spinning out of corporates often have to ‘inherit’ the corporate billing system – with its over-complexity and again, lack of real ‘ownership’.

The approach to addressing the costs (and negative view of customers) is to start to measure the interventions against particular causes. This should capture the product type, source (email, telephone, letter), duration of first line response etc.

In addition, further actions will have been carried out and these should also be noted.

The result should ultimately be a breakdown of time by:


- product
- customer issue
- impact on
front line support
second line
engineering
etc.

You’ve heard time is money right – well it is worth quantifying the cost of the interventions by using a standardised hourly rate for each type of person involved in the company. This may not seem important but one hour of the CEO is slightly more expensive than one hour of an outsourced call centre person.

Beyond that – what are the costs associated to the customer

- replacement product
- delivery

…and most of all – what of the business lost directly? If the customers can’t login for example, then clearly there is a direct impact in lost revenues – not to mention all the nasty things they say afterwards to their friends.

It is obvious to then simply start attacking the major issues but………..hang on do you go for the costs to the company or the impact on the client? This is where you need to use common sense. You can get very fancy assessing the customer impact factored against the cost to the company. My advice is grab a cup of coffee and the pragmatic approach will soon become obvious to you.

© Copyright Richard A D Jones 2005