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Tools and resources - calculating the value of customers and the cost of poor service

Cost of Inaction

Overview

Lifetime Value

Revenue at Risk

Cost of Call-Backs

Time Check

Cost of inaction - failing to fix recurring problems

An important step in the process of preventive analysis and justifying investment in product and service quality improvement is to estimate the financial impact of specific recurring problems that customers experience doing business with you.  If a problem rarely occurs, and its impact on your customers and your business is low, it may be more worthwhile to your customers and your business to invest time solving more serious problems.

A helpful approach in estimating this financial impact is to consider the “cost of inaction”.

The cost of inaction considers:


The tool below includes each of these elements and is pre-populated with sample company and research data from our archives.

When using the tool, feel free to replace the default data in Step 1 with values that relate more closely to your own business.

If you don’t have your own values for the research data shown in the model, feel free to use the generic data we have supplied, but please consider having us conduct a customer experience baseline study for you in the near future so you will be able to do more accurate modeling.

Step 1: Enter your data (or use our example)

 

Complaints handling data

  
       
• Average number of complaints received about this problem per month

 

  complaints per month
• Average complaint-handling cost per complaint

$

  dollars per complaint
• Average cost of repairs, rework or replacements involved per complaint

$

  dollars per complaint
       

Other company data and assumptions

      
         
  • Average profit per customer per year

$

  dollars per year
  • Influence of negative word-of-mouth on potential future customers
   (conservative assumption)		 % act on what they hear
       

Baseline research data

      
         
• % customers who complain when they experience a problem %

 
• Drop in loyalty due to problem experience %

 
  • Negative word-of-mouth (average number told of each bad experience)  others told of their experience 

Step 2: Calculate the cost of inaction

  

Click on the “calculate” button to calculate the potential cost of inaction:Point
     

Complaints-handling costs

    
     
(Cost of response, repair and replacement for this specific problem)    
       
• Number of complaints about this problem annually  complaints per year
• Annual response cost for this problem  per year
• Annual repair / replacement costs for this problem  per year
   
 
 

Total annual complaints-handling costs for this problem

  per year
 
       

Potential impact from lost loyalty of customers experiencing this problem

   
       
• Number of customers experiencing this problem annually

 customers per year
   
 
  Profit at risk from the reduced loyalty of customer who experience this specific problem  per year
     

Potential impact on future sales to new customers

  
       
• Number of potential customers hearing about this problem annually

  

 customers per year
  • Number of potential customers deciding not to buy as a result  customers per year
   
 
  Profits at risk from customers deciding not to buy as a result  per year
     
  Equals  

Total potential cost of inaction

    
   
 
  Potential financial risk from failing to fix this recurring problem  per year
       

Step 3: Your next step

This is only an indication of what a company stands to lose from failing to take action to reduce the number of problems experienced by customers.

To get the hard facts for your company, let us establish a customer experience baseline for your organisation to identify and quantify current sources of customer dissatisfaction, estimate potential returns on service investment and set customer-driven improvement priorities for action and change.
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