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Putting a price on customer satisfaction

March 28, 2000
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I have attended many seminars and read many articles about customer satisfaction, but few have ever addressed the price of that satisfaction, or dissatisfaction.

There are a few common statistics used in these seminars about how many customers tell how many of their friends and relatives about their dissatisfaction. Here are some statistics compiled by Technical Assistance Research Program (TARP):

  • “A typical unhappy customer tells 10 people about his problem.”
  • “One in five really unhappy customers tells 20 people about his/her problem.”
  • “A satisfied complainer will tell five people how excellent your service is if you solve the problem in their favor on the spot.”

Looking at Table 1, let’s use these statistics to calculate the cost to a hypothetical dealer who has no customer satisfaction program in place.

Now, looking at Table 2, let’s see how exceeding customer requirements creates sales on the spot.

With this in mind, when a customer says s/he is unhappy with your installation, what will you do? When a customer calls and says he is unhappy with your service work, what will you do?

What kind of guarantee are you going to give your work? The industry standard is to ask, “What would make you a happy customer?” Or an iron-clad response would be, “We’ll cheerfully refund your entire amount and pay for another company to satisfy you!”

One last statistic to consider is that the 30-year “lifetime value” of a customer can be in the range of $30,000, resulting in a total loss in sales of $30.24 million (Box E x $30,000). That’s staggering.

Taylor is a business consultant and regional trainer with Bryant. He is also active in dealer development programs. He can be reached at david.s.taylor@carrier.utc.com

TABLE 1

Box Item Installs Service Action
A Number of unhappy customers every month 1 5  
B Number of unhappy customers per year 12 60 A x 12 (Twelve months per year)
C Number of lost leads from “typical” unhappy customers 120 600 10 x B (Typical unhappy customers tell 10 people about your lousy service)
D Number of lost leads from “really” unhappy customers 48 240 B/5 x 20 (One in five really unhappy customers tell 20 people about your lousy service) 
E Total unhappy customers 168 840 C + D
F Closing rate for “word-of-mouth” customers 50% 100%  
G Sales lost from unhappy customers 84 840 E x F
H Average price per sale $2,500 $100  
I Lost sales due to unhappy customers $210,000 $84,000 G x H
J Cost to get new customers who have been chased away due to unhappy customers $200 $20 (Use these numbers if unsure what costs are)
K Cost to acquire new customers $16,800 $16,800 G x J
L Total lost opportunity due to customer dissatisfaction $226,800 $100,800 I + K

TABLE 2

Box Item Installs Service Action
M Number of happy potential customers from satisfied complainers 60 300 B x 5
N Closing ratio on “word-of-mouth” customers 80% 100%    
O Number of sales per happy customer 48 300 M x N
P Average sale $2,500 $100  
Q Sales due to customer satisfaction program $120,000 $30,000 O x P
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