The Business Impact of Customer Service on Customer Lifetime Value

The impact that customer service has on a business is something that often gets overlooked.

Customer service is often seen as a cost but is it more than that? Good customer service can be a huge differentiator in a marketplace. 

Just how important is customer service to your business? It’s well-known that one-time customers are expensive and that repeat customers are the ones that provide a stable revenue stream. But how does customer service affect your business?

By providing excellent service, you can improve your customer’s lifetime value. This means that you can generate more revenue by spending less on customer acquisition. It’s all about how you treat your customers.

Your customers’ interactions with you directly impact their perceptions of your business. If you want to attract repeat customers, you must make sure that you provide excellent service. If you want to make sure that customers keep coming back to you, you have to make sure that they have an amazing experience. The best way to do that is by offering the best service you can.

Good customer service not only provides the customer with a resolution. If the company demonstrates that they have your best interests at heart, you may be ready to make a lifelong commitment by buying their product again or referring others for purchases. Given the responsiveness customer service provides, it’s abundantly clear how much this impacts our bottom line.

A lot of talk goes into the importance of good customer service but the business impact is still not very clear. What is the impact of bad customer service? What is the impact of great customer service?

In this blog, we will try to unravel the mystery around this topic. We will also look at how companies like DialDesk are impacting the business bottom line with their excellent customer service.

What is the Customer Lifetime Value?

Customer Lifetime Value (CLV) is the total profit gained or lost from a customer over their lifetime. The “lifetime” of a customer is the period during which a company expects to receive future profits from a customer’s business or purchases.

It is calculated by combining the amount of revenue a customer generates for a business with the cost of acquiring and retaining that customer. The value of a customer is often referred to as the Net Present Value (NPV) of the future profit stream created by that customer. Some businesses even use the term “customer equity” instead of CLV to reflect the unique nature of customers to a business. 

When calculating CLV, a company can choose to look at the entire customer lifetime or to break it down into smaller periods such as the first year, second year, and so on.

The CLV formula is: CLV = Revenue – Cost of Acquisition – Cost of Retention CLV = (Revenue – COA – CR)/C Number of Months

How to Track Customer Service Metrics?

The core metrics you need to manage your customer service function are: Net Promoter Score (NPS), Customer Effort Score (CES), Customer Satisfaction Score, First Contact Resolution (FCR), Customer Lifetime Value (CLV), Customer Acquisition Cost (CAC), Customer Churn Rate, Lifetime Value of a Customer (LTV), Qualified Lead Score (QLSC), and Customer Delight Score (CDS).

According to a Bain & Company study, companies that provide better customer service earn revenues between 4% and 8% above their market averages. Additionally, they found that improving customer retention by just 5% can increase profits by 25% to 95%. 

How does Customer Service Affect CLV?

CLV is often used as a way of measuring return on marketing investment and is used in calculating the customer acquisition cost.

Let’s understand this with the following example:

A customer has a problem. You fix their problem. And they rave about your customer service. They tell their friends, who tell their friends, who tell their friends, and so on. This is how your company grows. And it is how you build long-term Loyalty and Lifetime Value (LTV).

Unhappy customers don’t do that. They tell everyone about their bad experience. And they tell them not to go to your store. They tell them to go to your competitor’s store instead. They tell them about the bad service and about how nobody cared about them. They tell everyone about their horrible experience and how your company doesn’t care about them. And this is how you lose long-term revenue.

“78 percent of customers abandon a purchase due to a negative customer experience, according to a report by Glance.”

Poor customer service can quickly make a customer stop using your services. The reason for this is that the customer suffered a negative experience. You see, unhappy customers will tell their friends and family about their experiences and they are also more likely to take to social media to vent their frustration. This is a problem because unhappy customers are more likely to leave you.

The Value of Customer Service:

Customer service representatives are constantly being compared with each other. They are well studied, and managers constantly monitor them. Some companies give reps feedback on how they should be acting. It’s hard to measure the impact of customer service on lifetime value without research, but company management seems to think that providing great customer service (having good phone etiquette and a pleasant voice) will get more people to buy their products or services.

How to Improve Relationships with Customers through Better Customer Service:

One important factor that affects lifetime value is customer service. Customers who are dissatisfied with a company’s service will often reuse that particular product or service less and less, ultimately leading to a decrease in customer satisfaction and an increase in customer acquisition costs.

Another downstream effect of poor customer service is decreased levels of employee retention.

Employees who are unhappy or frustrated at work usually help make customers unhappy, as well, so it’s critical to start improving relationships with customers by bettering customer service.

Here are simple ways to improve your approach to customer service to take up less time and consequently, gain more revenue as well.

• Customer Service Impacts Retention Rate:

Customer service is the new marketing. It’s the number one way customers choose to interact with your company. This is why customer service should be considered a part of your marketing strategy. Customer service shouldn’t be an afterthought, but rather an active part of your business that will help you gain and retain customers. If you provide good service, people will talk about it, as a result of which:

• They’ll become brand advocates and help you market your product for free.
• The way that customer service drives sales is by increasing retention rates and reducing churn rates.
• The more you help your customers, the more loyal they’ll become to your brand.
•  Customer Service Impacts Customer Lifetime Value:

The most important thing a business can do is treat its customers with respect. A lot of companies believe in “customer loyalty” but in reality, it’s “customer value” that matters.

Customer service is incredibly important to business and customer lifetime value is a metric that’s calculated by measuring the total revenue generated by a customer throughout their entire relationship with a brand. Customers aren’t loyal to a brand, they’re loyal to the value they receive and the customer lifetime value is exactly what it sounds like: how much value a customer will give over their lifetime.

Customer service affects how likely customers are to share their experiences both good and bad because social media has changed the landscape and most people now have cell phones with a nearly constant connection to the internet.

Addressing customer complaints within 24 hours and increasing the number of on-site employees don’t just get responses faster, they also start a cycle that can cause customers to become more loyal more quickly.

•  Finding simple ways to solve problems like having proper signage or repairing something will be noted by the customer and increases their sense of empowerment which makes them feel valued as well as making them less likely to return or complain publicly.
• Making small gestures like bringing refreshments back from meetings so that someone who had been waiting an hour without water doesn’t feel slighted also genuinely helps feelings in this way.
• Ways to Capture a Negative Online Review:

Bad customer service leads to unhappy customers and poor word-of-mouth advertisement. When it comes to online reviews, those that are less than five stars create a negative perception in potential buyers which impacts the lifetime value of the firm.

To increase their positive reviews, make sure prospects with bad customer service have been rectified or offered compensation before escalating the situation further. The best way for a company is to get back in touch with them as soon as possible. It’s also important that staff apologize during any outbound contact and ensure that responses are mitigated by a satisfying response.

Conclusion:

In a nutshell, a customer service strategy is more than a support ticket.

Customers become brand loyalists. Every interaction turns another potential friction point between customers and your company into an opportunity to deepen their trust in you–or increased frustration. Good customer service doesn’t just solve problems, it makes the most of all touchpoints to deepen engagement.

We built DialDesk to help you achieve that seamless experience – allowing you to converse with your customers in a way that is personalized for them.

With our cutting-edge software, companies can automate Customer Service and Sales processes by integrating technologies such as CRM, Lead Management, and more.

Author Profile

Deepak Kashyap

A CX expert, keynote speaker, and author, Deepak Kashyap has over 25+ years of experience. His talks on the subject are published on most prestigious forums, and his books have helped to spread awareness about how improving customer experiences can boost sales. Deepak is a prominent speaker who shares his expert opinion about customer experience.

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🔗 Tags: How does Customer Service Affect CLV?, What is the Customer Lifetime Value?

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