"The more you engage with customers the clearer things become and the easier it is to determine what you should be doing." ~John Russell, President, Harley Davidson
In 12 years of writing this column, I have probably talked more about customer service than anything else. Given some quiet time, I determined that I have focused so heavily on this issue because customer service is just so visible, not only to a business' customers in general, but also to me. I witness so many examples firsthand - both good and bad - that it makes sense I would continue to cover this important topic.
Most of my writings on the subject have been based on some personal experience, ranging from the great customer service at the Ritz-Carlton to the many, many disastrous examples I've witnessed elsewhere. I am continually trying to get management to devote more time and effort to this area. Sometimes I am successful and sometimes I am not.
I think, in many ways, the problem originates with the term itself. "Customer service" is such an overused and cliche term, and quite honestly, it is often linked to negative experiences. Case in point, I recently had some problems with my laptop and, when their customer service inevitably failed to be of assistance, they kicked me to the customer relations department. The term "customer relations" also had me a tad concerned, especially after having been turned away by their customer service department.
My point here is that these terms have just lost their value as customers have become numb to them.
Most customers call a business for help, not "service." They just want help! Customers just do not know what "service" means as it is such a broad term. Alternatively, a "customer assistance" department really resonates much better because it references exactly what they are after.
So often when calling a business for assistance the person on the other end of the line responds with a somewhat cold, "What number are you calling for?" or "What is your account ID?" A much warmer, more welcoming alternative is "How may I help you today?" Hearing this friendly offer of assistance leaves the customer with a much better feeling, but so many businesses just seem to forget about how important the greeting is to the overall experience.
Another reason I think we see customer service on the decline is that it is such a broad term. It is sometimes difficult to improve something if it has not been defined well. "Customer service" covers such a wide assortment of issues that it can be very illusive and tough to pin down. Before you can begin to improve your customer service, you must first be able to define it.
Employees must have precise methods of dealing with customer issues, and while it convenient to lump all problems under a very general umbrella, this ambiguity does nothing to identify what the customer really wants when they contact the business. Put in the plainest and simplest of terms, they want help.
Now go out and consider renaming your customer service department your "customer assistance" department. I promise that as a result, your customers will receive much better service.
You can do this.
Sunday, February 26, 2012
Sunday, February 19, 2012
What is the Cost of Customer Acquistion?
"It's a very, very tough market. So unless you do a really good job, you buy the right products from the manufacturers, you service the customer, they keep coming back, they bring their friends in, it's all about numbers, numbers, numbers." ~John Ilhan
What is a customer worth to your business? Too often I see entrepreneurs grossly understate the value of each customer. If you do not know the true value of a customer then it is so hard to estimate on how much to spend to acquire new customers or how much effort to put into keeping each existing customer.
Okay, then what is the real value of a customer? It is really a pretty simple computation involving 4 steps. First, you estimate the gross purchases the customer will make in a year. Step 2 is to take to figure out what the gross profit is from these purchases and Step 3 is to figure out how long would you expect to retain this customer. Finally, Step 4 is to bring these future cash payments back to the present value or today's dollars.
Suppose a business estimates that the average customer spends $500 a year at their store and their gross margin is 40%, which equates to $200 a year in gross profit. If we assume that the customer will stay with us for 6 years then the value of the average customer to us is $1,200 over the six-year period. However, the present value in today's dollars at 6% is for those 6 $200 gross profits are $1015.
Once you know the customer acquisition cost (CAC), then you have an idea of the real value on each customer and can make good decisions. In this example, it would be economical for the firm to spend up to, but hopefully a lot less, that $1015 to acquire new customers.
Where this customer acquisition costs becomes so critical is for new businesses or new product lines. Clearly, during the dot.com period, many, many companies were paying much more for a customer than they would ever generate in revenue which is why so many of these companies did not survive.
Frequently you can use this CAC to ascertain if it is wise to purchase customers or customer lists from firms that are going out of business or wish to get out of one element of their business.
By knowing the real cost of customer retention or acquisition, you can quickly see the very high value of each customer coming into your business. If you let one customer go, you are loosing not only that transaction but, probably, over six years of profits that you will be foregoing.
Now go out and make sure you know the cost of customer acquisition for your business set up by product line. You really do need to do this by product line as the gross margin is frequently so different between the lines.
You can do this!
What is a customer worth to your business? Too often I see entrepreneurs grossly understate the value of each customer. If you do not know the true value of a customer then it is so hard to estimate on how much to spend to acquire new customers or how much effort to put into keeping each existing customer.
Okay, then what is the real value of a customer? It is really a pretty simple computation involving 4 steps. First, you estimate the gross purchases the customer will make in a year. Step 2 is to take to figure out what the gross profit is from these purchases and Step 3 is to figure out how long would you expect to retain this customer. Finally, Step 4 is to bring these future cash payments back to the present value or today's dollars.
Suppose a business estimates that the average customer spends $500 a year at their store and their gross margin is 40%, which equates to $200 a year in gross profit. If we assume that the customer will stay with us for 6 years then the value of the average customer to us is $1,200 over the six-year period. However, the present value in today's dollars at 6% is for those 6 $200 gross profits are $1015.
Once you know the customer acquisition cost (CAC), then you have an idea of the real value on each customer and can make good decisions. In this example, it would be economical for the firm to spend up to, but hopefully a lot less, that $1015 to acquire new customers.
Where this customer acquisition costs becomes so critical is for new businesses or new product lines. Clearly, during the dot.com period, many, many companies were paying much more for a customer than they would ever generate in revenue which is why so many of these companies did not survive.
Frequently you can use this CAC to ascertain if it is wise to purchase customers or customer lists from firms that are going out of business or wish to get out of one element of their business.
By knowing the real cost of customer retention or acquisition, you can quickly see the very high value of each customer coming into your business. If you let one customer go, you are loosing not only that transaction but, probably, over six years of profits that you will be foregoing.
Now go out and make sure you know the cost of customer acquisition for your business set up by product line. You really do need to do this by product line as the gross margin is frequently so different between the lines.
You can do this!
Sunday, February 12, 2012
Is Customer Service That Important?
"Quality in a service or product is not what you put into it. It is what the client or customer gets out of it." ~Peter Drucker
If you have been reading my columns for a while (you should, by the way, if you have not), you know that I compete in dog obedience trials with my wonderful black lab, Sophie. As part of these competitions, we travel all over to compete before different judges. Most recently, we were at a venue in Charleston, SC.
During last week's trial in Charleston, Sophie did a great job, but the trainer was marginal, at best. One night during this event, all the Tallahassee dog trainers and some of their family went to this very special, long-established restaurant on Johns Island. The local folks raved so much about this restaurant that we just had to take their strong recommendations.
When we got there around 6:30, I noticed there were at least 200 folks just standing in line. Little did I know at the time that they were standing in line just to place their orders and pay.
Once I realized that you ordered your meal and paid before sitting down to your dinner, I asked several veteran customers how long it would take us to get through the line. They said it would be at least an hour to an hour and half, but that it was worth the wait.
As I stood outside in the chilly evening wishing I was warm inside the restaurant, I had a chance to observe the way orders were processed. They had one very hard-working man taking all of the orders, accepting payment and bartending as well. Between meal orders, he would fill drink orders and keep the beer coolers stocked.
He was working as fast and as hard as he could, but there was no way he could keep up with the sheer volume of customers. Despite his best efforts, the bottleneck was slowing down the entire process and keeping the line backed up.
Excluding this one employee who was surprisingly cheerful despite the workload, the customer service at this restaurant was horrendous, at best. They had no greeters, no kind words about our wait. They were just not customer-driven at all.
If you ordered oysters, they dumped your portion in a pile on the table in front of you using a large shovel. The tables themselves were slabs of rugged plywood with a hole in the middle to capture both garbage and discarded oyster shells.
Based on my experience, I could not help but wonder why a restaurant like this with such bad customer service would have such a strong following. When I asked several people in line why they were willing to tolerate the long wait, poor customer service and no wait staff, every one of them said the food made it worthwhile. I, too, found the food very fresh and tasty, but for me, it was not enough to make up for the lack of customer service.
I think - make that, I know- this restaurant is successful because it serves very good seafood at reasonable prices in a very unique atmosphere. Patrons are willing to trade off poor customer service for the quality of the food. They told me as much again and again as I surveyed them while waiting in line to order and pay (over an hour and a half).
In the case of this restaurant, the food quality and value clearly trumped customer service. Customers were willing to make this concession because, to them, the tradeoff was worth it.
Now, I am not making an argument for poor customer service. The only point I am making is that sometimes - but very infrequently - customer service does not have to be very good if there is something extraordinary to make up for its absence. However, I would still prefer to have great customer service along with top quality products or services, and I am certain even this restaurant would do much better if customer service was incorporated into their operational recipe.
Now go out and make sure that you have great customer service. Customer service should be there regardless of what other excellent benefits you provide your customers.
You can do this.
If you have been reading my columns for a while (you should, by the way, if you have not), you know that I compete in dog obedience trials with my wonderful black lab, Sophie. As part of these competitions, we travel all over to compete before different judges. Most recently, we were at a venue in Charleston, SC.
During last week's trial in Charleston, Sophie did a great job, but the trainer was marginal, at best. One night during this event, all the Tallahassee dog trainers and some of their family went to this very special, long-established restaurant on Johns Island. The local folks raved so much about this restaurant that we just had to take their strong recommendations.
When we got there around 6:30, I noticed there were at least 200 folks just standing in line. Little did I know at the time that they were standing in line just to place their orders and pay.
Once I realized that you ordered your meal and paid before sitting down to your dinner, I asked several veteran customers how long it would take us to get through the line. They said it would be at least an hour to an hour and half, but that it was worth the wait.
As I stood outside in the chilly evening wishing I was warm inside the restaurant, I had a chance to observe the way orders were processed. They had one very hard-working man taking all of the orders, accepting payment and bartending as well. Between meal orders, he would fill drink orders and keep the beer coolers stocked.
He was working as fast and as hard as he could, but there was no way he could keep up with the sheer volume of customers. Despite his best efforts, the bottleneck was slowing down the entire process and keeping the line backed up.
Excluding this one employee who was surprisingly cheerful despite the workload, the customer service at this restaurant was horrendous, at best. They had no greeters, no kind words about our wait. They were just not customer-driven at all.
If you ordered oysters, they dumped your portion in a pile on the table in front of you using a large shovel. The tables themselves were slabs of rugged plywood with a hole in the middle to capture both garbage and discarded oyster shells.
Based on my experience, I could not help but wonder why a restaurant like this with such bad customer service would have such a strong following. When I asked several people in line why they were willing to tolerate the long wait, poor customer service and no wait staff, every one of them said the food made it worthwhile. I, too, found the food very fresh and tasty, but for me, it was not enough to make up for the lack of customer service.
I think - make that, I know- this restaurant is successful because it serves very good seafood at reasonable prices in a very unique atmosphere. Patrons are willing to trade off poor customer service for the quality of the food. They told me as much again and again as I surveyed them while waiting in line to order and pay (over an hour and a half).
In the case of this restaurant, the food quality and value clearly trumped customer service. Customers were willing to make this concession because, to them, the tradeoff was worth it.
Now, I am not making an argument for poor customer service. The only point I am making is that sometimes - but very infrequently - customer service does not have to be very good if there is something extraordinary to make up for its absence. However, I would still prefer to have great customer service along with top quality products or services, and I am certain even this restaurant would do much better if customer service was incorporated into their operational recipe.
Now go out and make sure that you have great customer service. Customer service should be there regardless of what other excellent benefits you provide your customers.
You can do this.
Sunday, February 5, 2012
Accountability is so important.
“A person may cause evil to others not only by his actions but by his inaction, and in either case he is justly accountable to them for the injury.” ~John Stuart Mill
People are constantly talking about accountability, yet so few businesses really make their staff accountable. According to my dictionary, “accountable” is defined as an obligation to report, explain, or justify something; responsible; answerable. For me, accountability means that you lay out your expectations for your staff and measure their progress, both rewarding their success and taking appropriate action when they fall short of the desired results.
So many businesses call us for help and admit that their performance is weak because they do not hold their staff accountable. When asked why, they typically say either that they do not know how or that their business culture has simply grown up without it. In the beginning they were working too hard to hold anyone accountable, and this philosophy just became embedded in the organization’s culture over time.
A large service management company we were assisting was having significant profitability issues. They shared with me that their issues were due to the near total absence of accountability. When I probed further, they admitted the real problem was that there were four partners in the organization and no one really wanted to be in charge – yet they all wanted to control everything.
The hardest part of this assignment was getting the partners to understand that their problems rested with them. If they could not hold themselves accountable, that kind of accountability would never trickle down through the ranks of the organization.
We started by listing the strengths and weaknesses of each partner, then based on this list, we identified areas of the organization each partner would manage. The partners were all accepting of the plan to assign them management areas, but we had quite a bit of push back when the discussion turned to selecting a general partner who would have authority above the others. There had to be someone who could make decisions if partners disagreed.
The partners could not agree on who that general partner would be. While not optimal, we established an annual rotation schedule where each partner would rotate into the position of authority for a year. They were not completely sold on this plan, but they accepted it realizing it provided a tolerable solution to their large problem.
After establishing accountability at the top, we were able to turn our attention to the rest of the organization. We are currently moving through the ranks, implementing incentives and performance evaluations to develop accountability at all levels. Each employee is assigned monthly goals and they meet with their manager every month to review their performance.
While it is still early in this process, I am sure that this plan will improve the business’s profitability and culture.
Now go out and make sure that accountability is at the center of any reward or management system. I promise your management job will become much easier if you establish a company-wide accountability program.
You can do this!
People are constantly talking about accountability, yet so few businesses really make their staff accountable. According to my dictionary, “accountable” is defined as an obligation to report, explain, or justify something; responsible; answerable. For me, accountability means that you lay out your expectations for your staff and measure their progress, both rewarding their success and taking appropriate action when they fall short of the desired results.
So many businesses call us for help and admit that their performance is weak because they do not hold their staff accountable. When asked why, they typically say either that they do not know how or that their business culture has simply grown up without it. In the beginning they were working too hard to hold anyone accountable, and this philosophy just became embedded in the organization’s culture over time.
A large service management company we were assisting was having significant profitability issues. They shared with me that their issues were due to the near total absence of accountability. When I probed further, they admitted the real problem was that there were four partners in the organization and no one really wanted to be in charge – yet they all wanted to control everything.
The hardest part of this assignment was getting the partners to understand that their problems rested with them. If they could not hold themselves accountable, that kind of accountability would never trickle down through the ranks of the organization.
We started by listing the strengths and weaknesses of each partner, then based on this list, we identified areas of the organization each partner would manage. The partners were all accepting of the plan to assign them management areas, but we had quite a bit of push back when the discussion turned to selecting a general partner who would have authority above the others. There had to be someone who could make decisions if partners disagreed.
The partners could not agree on who that general partner would be. While not optimal, we established an annual rotation schedule where each partner would rotate into the position of authority for a year. They were not completely sold on this plan, but they accepted it realizing it provided a tolerable solution to their large problem.
After establishing accountability at the top, we were able to turn our attention to the rest of the organization. We are currently moving through the ranks, implementing incentives and performance evaluations to develop accountability at all levels. Each employee is assigned monthly goals and they meet with their manager every month to review their performance.
While it is still early in this process, I am sure that this plan will improve the business’s profitability and culture.
Now go out and make sure that accountability is at the center of any reward or management system. I promise your management job will become much easier if you establish a company-wide accountability program.
You can do this!
Subscribe to:
Posts (Atom)