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Putting a Price Tag on ComplaintsPosted 6/15/2006Bob Cooper
When it comes to customer complaints, most shop owners seem to know that there's some economic price they'll pay, but when asked how much each complaint may cost, they typically have no idea. Consider this: When a customer complains, the first direct cost you're going to incur is a loss of your "time." This is the time you spend listening to the customer, discussing the resolution and following up with the customer to ensure their complaint has been resolved. Let's call this direct expense "customer communication" time. Now, I realize the amount of time will vary with each complaint, so let's assign 25 minutes as a realistic number for your average complaint (five minutes when the customer first calls you with a complaint, 15 minutes when they return for correction or resolution, and then an additional five minutes for follow-up.) Now let's look at the time you spend on the "internal" communication that comes along with each complaint. This is the time you spend with your technicians and service advisers discussing the cause, the resolution and the prevention of future complaints. Here at Elite we feel 15 minutes is a realistic number when it comes to this "internal" communication, and then we'll also need to consider the same amount of time, at a minimum, of your employee's time. So your "internal" communication will cost you at least 30 minutes with each complaint.
Note: The hypothetical labor rates reflected in the example below are provided merely to show how costs may be calculated. The actual prices charged by an individual shop must be calculated and determined by the business owner alone. These prices should take into account the cost of doing business and include allowances for reasonable profit. This example is predicated on a shop labor rate of $90 per hour, the shop producing $180 per hour per technician, and the cost of generating a new customer being set at $30. In this example, 25 minutes of customer communication costs $38; 30 minutes of internal communication costs $45; direct marketing cost to replace one of five customers costs $6; 30 minutes in loss of productivity costs $90 for a total of $179. If you would like to calculate what it costs your shop for a customer complaint, use the worksheet formulas below:
Add these amounts for a total cost of a customer complaint. If you think $179 is a big number, please bear in mind we're talking about customer "complaints" not warranty "repairs." In addition, we haven't taken into consideration the economic damage to your reputation, the damage to employee morale, the loss of income that's associated with the loss of a customer or the direct cost of any repair. That's also why the industry superstars invest in training, go the extra mile to deliver extraordinary service, and follow up with each and every customer. They know they are far better off investing a little more money in their people rather than losing a fortune ... through customer complaints.
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Let's shift gears and talk about the cost of customer attrition and the cost of marketing that will come along with each customer complaint. In regard to "customer attrition," regardless of how well you handle the customer complaint, you run a higher probability of losing that customer than losing an otherwise satisfied customer. So going under the presumption that you run a good business, and with the assumption that you'll be able to retain 80 percent of the customers who complain, you'll still be losing 20 percent of those who do complain. Subsequently, you're now faced with the marketing cost of replacing those lost customers. Lastly, you have what we here at Elite call "loss of productivity." Simply put, while your employees are discussing the complaint with you, they are unable to be generating additional income for the company. Now, based on everything we discussed, here's the math you and your employees may very well find surprising:
