Tuesday, March 2, 2010

The Bottom Line Trumps the Customer

It just seems like such good financial sense. The bottom line is more important that the customer. Afterall, what good to the customer is a company that goes out of business? But of course, it's not really ever that black or white. And yes, without the customer, there would be no bottom line. But when is the satisfaction of one customer more important that the bottom line? Maybe when it's your only customer? Or your biggest customer? Maybe one's not that important. But what about one hundred? Or one thousand? How do you decide how many customers you can afford to lose? That's the real question, because you can't define processes for the fringes and expect them to be cost effective. Or can you?

If the economics of your business includes a small handful of customers that pay you a ton of money for your product or services then you don't really have to worry about this question. It's moot, because you probably can't afford to lose any customers without severly damaging your bottom line and therefore, all your processes can afford to deal with the fringes. But most businesses just don't have the luxury (and risk) of that economic model. So the fact is that most businesses can afford to lose some customers without much negative effect on the bottom line. But consider this, it is not unusual for it to cost up to 20X to acquire a new customer vs. saving a current one. Couple that with the fact that current satisfied customers will buy more from you year over year and that loyal customers will increase their revenue with you even more, it can be a pretty compelling financial strategy to acheive zero defections. Unfortunately, this type of wholistic analysis is not usually considered when companies are combing over cost reductions in the support organization.

Nobody is suggesting that companies should stop acquiring new customers. But saving customers should at least have equal footing with aquiring new ones. And part of your corporate strategy should be a Customer Retention Strategy and the focus on post sales support to pull it off.