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What's the Real Cost of a Bad Customer Experience?

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Most people know that a bad customer experience will eat away at their company’s revenue. But the price tag attached to those bad experiences is rarely calculated.

It’s difficult - if not impossible - to determine the cost of a bad reputation, but VisionCritical estimates the overall impact of bad customer experiences in the United States is more than $537 billion.

Just typing that feels painful!

Bad customer experience is clearly a common problem, but how does it translate to your small business, and what can you do about it?

The Math Behind Unhappy Customers

PC: VisionCritical

How does a bad customer experience affect revenue?

When a customer has a bad experience with your company, you could lose their business. But the problem doesn’t end there.

Word of mouth is powerful. One unresolved customer complaint can spider web across the Internet like a crack in the windshield of your reputation.

It’s frustrating to spend time and resources fixing issues (especially if it’s the customer’s fault), but allowing problems to go unresolved will undoubtedly result in a costly negative review, either in person or online.

Do you know how powerful reviews are?

How Consumers Feel About Reviews

Consumers generally trust online reviews as much as recommendations from friends and family. For small business owners who rely on their reputation for providing a great customer experience, bad reviews can be financially devastating.

How? Let’s look at a few industries.

Accounting

Accountants are asked to personally adhere to the highest standards of ethics, but they’re also held responsible for the actions of their current and former employers. You also want to trust your accountant before you decide to work with them.

Perhaps the strongest example of how devastating a loss of trust can be in the accounting industry comes from the downfall of the largest accounting firm in the world, Arthur Andersen LLP.

After being convicted of obstruction of justice in 2002 for shredding and doctoring documents related to Enron audits, the company lost all 1,200 clients, 90% of its employees, and ceased auditing public companies.

They were responsible for an experience that hurt thousands of people. The world found out, and no one trusted them anymore.

The same can happen on a small scale, too. If you make a bad decision that hurts a client, they’ll tell a friend (or several) and neither will work with you.

House Cleaning Services

A common challenge for cleaning companies is the average customer churn rate of 55%. That means they’re losing over half their customers every year.

Since acquiring a new customer costs 5X-25X times more than selling to your existing base, poor customer experiences can easily keep your cleaning service from growing.

Richard Branson on Customer Expectations

Here’s some math to illustrate the impact.

Let’s say you have 100 customers, and each is worth $150/mo, or $1,800/yr. This year you’re going to lose 55 of them, which is $99,000/yr in lost revenue.

The worst part is you’ll spend tens of thousands of dollars to replace the customers you lost, only to lose half of them again next year. It’s a terrible cycle that makes growing difficult.

Restaurants

A study by Harvard Business School suggests restaurants could experience a 9% drop in annual revenue by losing just one star on Yelp. That equates to an 18% difference in revenue between a 3-star and a 5-star rating.

In an industry with notoriously tight margins, it can be expensive to ensure every customer leaves happy. But restaurants can’t afford to skimp on satisfaction.

A business earning $1 million in annual revenue would lose $180,000 each year if their earnings fell by 18%. That could be the difference between success and bankruptcy.

Hotels

Hotels are incredibly vulnerable to poor reviews. A bad experience can ruin an expensive family vacation, derail a business deal, or even cause health problems. And when those experiences happen, the victims are sure to let the world know.

How Reviews Affect Hotels

PC: HospitalityNet

We’re also now seeing reputation dictate room rates. While this can help businesses remain competitive in a landscape that’s seeing increased pressure from Airbnb, several bad reviews related to customer experience can push already slim margins into negative territory.

No one wants that.

Construction and Contracting

A construction company’s revenue is heavily tied to reputation. When consumers and other business owners are shelling out five, six, even seven figures for a contract, they demand to know the work will be done well.

Unfortunately, contracting carries a high price tag and comes with lofty expectations, so when customers are dissatisfied, they may take their complaints to the internet.

According to one defamation suit filed by a construction company against a negative reviewer, the cost of the company’s soiled reputation was worth approximately $750,000.

Ecommerce

The impact of a bad customer experience is easy to calculate for ecommerce businesses (or anyone else selling products online).

80% of people won’t buy from a company with bad reviews. So a company selling five $100 products each day would miss out on $400 daily if four out of five customers left because of bad reviews. These losses would quickly add up to $146,000 in lost revenue annually.

Customers Will Pay More for Better Experience

PC: SuperOffice

Hiring and Retention

Most people think of the cost of a bad customer experience in terms of lost business or refunds. That's what we’re focusing on in this article, too, but it also affects who wants to work for you. More than 70% of U.S. workers will not apply for a job at a company with negative press.

The lack of available workers can drive up hiring and retention costs. Companies with a bad reputation will end up paying 21% more in salaries to keep employees on board.

If you think replacing them would be cheaper, one study calculated the cost of replacing an employee earning $50,000 annually to be $10,000,or 20% of their salary.

6 Steps to Protect Your Business from Bad Experiences

The loss of revenue from bad customer experiences and reviews can’t be ignored. Sometimes bad experiences are hard to avoid, but by following these six steps, you can build a digital fortress around your business’s reputation.

1. Plan ahead.

Perform a risk analysis of your business to identify potential customer service problems that could lead to negative reviews or customer defections.

Areas of focus will vary depending upon your industry, but you should consider the following:

  • Customer inquiries
  • Negative reviews
  • Customer service
  • Billing errors
  • Property damage or injury
  • Marketing and communication errors
  • Lawsuits
  • Environmental or disaster emergencies

Are there any issues currently going on? What would have to happen in each area to create a bad customer experience (or hurt your reputation)?

Next, turn your risk analysis into a thorough crisis management strategy that enables you to move quickly to resolve online issues that could harm your reputation as they appear.

2. Stop negative reviews.

The most effective way to control customer complaints is to prevent them. Customers often go on a social media rampage because their situation was not properly resolved.

To avoid that, give clients an easy way to voice their frustrations on your website or over the phone (without forcing them through endless automated prompts), so they don’t publish their complaints online.

Power of Word of Mouth

You should also do everything in your power to fix the problem, no matter whose fault it is. When in doubt, here’s an easy 5-step process you can follow.

  • Confirm the issue or need
  • Empathize with the person (if they’re upset)
  • Tell them you’re going to do everything you can to resolve it
  • Actually do everything you can to resolve it
  • Throw the customer a bone for their trouble

Related: How to Get More 5-Star Reviews for Your Business

Customers are often willing to forgive errors if the situation is properly handled. By showing your willingness to set things right without any friction, you may be able to convert a defector into an loyal customer. And you might be able to turn a bad experience into a great review.

3. Monitor for trouble.

96% of unhappy customers don't complain - they just leave. But many of them will still mention your business on social media or to their friends.

Catching these “soft complaints” and attempting to resolve them can teach you about hidden customer pain points that might erupt into a reputation problem if allowed to continue.

Services like Google alerts and social media listening tools like Mention or Hootsuite can help you stay up-to-date with what people are saying about your company (or industry), and give you opportunities to address situations quickly as they come up.

4. Build your social profiles.

Not all social profiles fit all businesses, but all companies should be using at least one or two. Websites like Twitter, LinkedIn, Facebook, and Google+ carry significant ranking power with Google, so publishing regular content across these profiles can help boost your reputation.

Related: How to Drive Traffic to Your Website Through Social Media

Avoid the temptation to simply sign up for as many profiles as you can and then abandon them. Inactive social profiles could tell potential clients that your business is no longer open, or that you're strapped for resources.

But if you’re active (at least every few days), viewers will trust your brand more than if you aren’t active. It’ll also give you more chances to create good experiences for customers, while addressing any negative ones that pop up.

5. Request more reviews.

It can take up to 12 positive reviews to offset a single negative comment, so it’s a good idea to bolster your reputation with some positive news even if there isn’t a problem yet. Either way, make it a habit to ask happy customers to review your company.

Texting for Reviews

Under no circumstances should you write or purchase fake reviews for your company. It's illegal, and can damage your online reputation and destroy the credibility of existing positive reviews.

If you’re unable to find any customers willing to recommend your company, then bad reviews are the least of your problems, and you need to revisit your customer experience from the ground up.

6. Submit press releases (or guest posts).

If Google can’t find any positive articles about your business, negative customer content could dominate your digital profile. Submit positive press releases and guest posts that share your milestones, experiences, or good deeds.

These will help you gain traction with local media and give Google something to show the people searching for you.

Related: How to Get High Quality Backlinks from Top Websites

Take this with you.

More than a quarter of companies admit to experiencing bad publicity, and the financial impact of negative content affects both income and expenses.

Waiting until a problem arises, or pretending one doesn’t exist, increases the time and cost of recovery. That's one reason providing a great customer experience should be viewed as an investment rather than an expense.

Even when the patron is wrong, it may be better for your bottom line and your reputation to offer a refund instead of allowing your customer to leave angry. In all situations, do what you can to create the best customer experience possible.

Related: 3 Simple Steps to Provide the Customer Experience Millennials Want