The Lifetime Cost of a Detractor is Greater Than the Lifetime Value of Customer
During my keynote at Search Exchange 2012. I shared the following concept:
The lifetime cost of a detractor is greater than the lifetime value of a customer.
I didn’t get too much time to expand upon that theory, so that’s what I’ll do in this post. 🙂
Let’s say you have a customer that wishes to give you some pretty negative feedback about your service:
The customer is paying $10 a month for your service, but has been very unhappy with the continued outages suffered over the course of the past month.
They contact you and explain that they’re really not happy and that unless you refund their last month’s payment, they’re going to take their business elsewhere and warn their friends not to do business with you.
You calculate that the lifetime loyalty of the average customer is 12 months. Despite this being a potential loss of $120 over the course of the year, you decide that you can easily replace that unhappy customer with a new one. You consider the request and determine that you’re not willing to refund the $10.
The customer feels disgusted that you didn’t value them greater than the cost of the $10 they wanted refunded. They feel like revenge. They not only cancel their service, but they start telling their friends about how you treated them. Those friends share, retweet, and spread the warning.
The message spreads across social networks. The unhappy customer writes a blog post about how they were treated. It starts ranking in the top 10 of Google’s search results for your company name. Hundreds–thousands–of potential new customers see the complaint.
You thought you had lost revenue of just $120. You were prepared to live with that, because you needed just one new customer to replace that income. Now, you are losing lots of potential sales due to the negative blog post, tweets, and Facebook posts. Sales are down 10% – which is approximately 25 new customers per month. The math? 25 customers x $120 expected lifetime value = $3,000 in lost revenue, due to creating a detractor for your brand.
$3,000 lost, because you didn’t refund $10 to one customer you failed to serve as promised.
Think about that math, the next time you make a call on whether to apologize and offer your unhappy customer a reason to stay with your business. 😉
Very true and nicely laid out.
Based on this I am going to write and sell an ebook called ” How to get almost anything for free by using this one simple trick with customer service” 🙂
Hah Nick! Of course, you have to have a legitimate reason for complaining, otherwise you don’t get too far. 😉
Nicely done. However, in the real world the example is much harder, if not impossible, to define.
Is a disgruntled customer suddenly converted to an advocate simply because you refunded a month’s service fee?
Does the typical consumer have their own blog to vent their frustrations at companies they do business with that suddenly turns up in a top 10 Google search? Not likely.
The better approach for companies is to create a culture of customer service that makes every attempt to delight customers at every interaction. Far more cost effective than worrying about refunds and social media impact.
Good companies understood this before Gore even thought of the internet.
So many professionals & organizations (businesses) don’t consider the impact of short-term decisions (no refund) on their long-term relationships & reputation.
In the digital age, customer service must understand that a disgruntled customer’s disruptive reach is amplified.