Beyond Satisfaction Scores: Understanding the Financial Impact of Customer Service

While you may already be tracking satisfaction through those trusty customer satisfaction scores (CSAT), you know that this is only one piece of the puzzle. To understand how much is worth spending on your customer service, it's critical to measure the actual financial impact even as little as 1% improvement in CSAT has on your company. With this knowledge, you will be able to determine how much to invest in the customer service operation and how to evaluate the success of different CS initiatives.  

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In this post, we'll explore the financial impact of customer service beyond satisfaction scores. We'll discuss different metrics for measuring the financial impact and show you how to calculate the value of each 1% increase in CSAT. We'll also provide strategies for improving customer satisfaction and its impact on your financial bottom line. 

Measuring the Financial Impact of Customer Service 

Measuring the financial impact of customer service is important because it assists in understanding the ROI of your customer service. There are several metrics you can use to measure the direct financial impact, such as AOV and purchase frequency. We can also touch on the indirect effects on the customer lifetime value (CLV) of a company which would include 5-star ratings and word of mouth but these things are hard to measure.

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Customer lifetime value (CLV)  is the total amount of revenue a customer is expected to spend throughout their relationship with your company. By providing great customer service, you have the potential to increase CLV by encouraging things like repeat purchases and positive word-of-mouth. When you provide great customer service, it will lead to increased revenue growth. Lastly, by resolving issues quickly and efficiently, you can save money on costly returns, replacements, and refunds. We will focus on measuring customer satisfaction (CSAT) through average purchase value and purchase frequency.

An example

Let’s start with Company A, a leading fashion and footwear brand, which has built its entire brand around customer service. Their average purchase cost is around $160, their purchase frequency is every two months and their CSAT is measured by good, bad, or nothing. By prioritizing customer service, company A has fostered a loyal customer base that recognizes and appreciates the brand's commitment to meeting their needs and exceeding expectations. This dedication to exceptional customer service and to achieving high CSATs has undoubtedly played a crucial role in their ongoing success in the fashion and footwear e-commerce market and in return helps build trust and loyalty but also encourages repeat purchases and word-of-mouth recommendations. By achieving a CSAT score of 0.9 Company A gets 6 purchases per customer per year on average. 

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‍On the other hand, you have Company B, its competitor, in the same world of online fashion and footwear with a similar average purchase cost of $160 and is also measured by good, bad, or nothing. Company B seems to fall in CSATs and thus in purchase frequency. For instance, numerous customer reviews indicate that Company B's customer service is often unresponsive and unsatisfactory, leaving shoppers feeling frustrated and unheard which leads to bad reviews. Additionally, while Company A consistently delivers response times to within minutes, Company B has been plagued with slow response times, resulting in disappointed customers anxiously awaiting responses. This leads to their customers not repurchasing or referring to their friends down to the point where the average purchase frequency is less than 50% of that of company A. It is evident that when it comes to customer satisfaction and efficient responses Company B has some significant improvements to make to catch up with its esteemed competitor, Company A.

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‍By focusing on delivering outstanding customer service, Company A can create a positive and memorable experience for their customers, which leads them to repurchase and refer friends, which ultimately impacts Company A’s revenue in a positive way.

Understanding the Value of Each 1% of CSAT  

Now that we understand the role of customer satisfaction in the financial impact of customer service, let's discuss how understanding the financial value of each 1% increase in customer satisfaction, companies can make data-driven decisions and measure the ROI (return on investment) of their customer service initiatives. Many different aspects can lead to lowering customer satisfaction (CSAT) like marketing, focusing on customer retention, partnerships, and collecting customer contact information.

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‍The article "The Value of Customer Experience, Quantified" discusses the importance of customer experience and how it impacts a company's bottom line. The authors analyzed data from two companies, one transaction based and the other relationship-based (subscriptions), and found that a 1% increase in customer satisfaction can result in a significant increase in revenue. Customers who had the best past experiences spent 140% more compared to those who had the poorest experience.

https://hbr.org/2014/08/the-value-of-customer-experience-quantified 

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‍The Role of Customer Satisfaction in the Financial Impact of Customer Service 

According to the Journal of Marketing, in 2006 a study titled “Customer Satisfaction and Stock Prices: High Returns, Low Risk” discovered that each 1% improvement in ACSI customer satisfaction scores for an employer was associated with a statistically significant 4.6% increase in its overall stock market value. After applying this to their findings, they were able to calculate the future impact of a one-star improvement in Glassdoor employer ratings, given the expected knock-on improvement in customer satisfaction scores: an increase of 7.8% to 18.9% in long-term market valuation. 

https://terpconnect.umd.edu/~smithas/papers/mithascsstkprice2006.pdf  

We have seen similar success with our clients. Working with a leading fashion and footwear brand, we were able to significantly enhance the percentage of customers who repurchased after three months. The catalyst behind this remarkable achievement? Good CSATs.

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After collaborating with a high-class clothing company, we embarked on a meticulous analysis to uncover the impact of customer satisfaction on purchasing behavior within a 90-day timeframe. By scrutinizing a substantial dataset consisting of 110,000 customer service tickets spanning from January 2021 to October 2022, we unraveled fascinating insights that illuminate the correlation between customers' CSAT responses and their customer’s repurchase rates.

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Our findings unveil a pattern: a customer's CSAT rating is pivotal in shaping their future purchasing decisions. The chart presented below paints a compelling picture: the impact of good reviews on repurchase behavior. Customers who bestowed a "Good" CSAT rating exhibited an impressive repurchase probability exceeding 40%. Conversely, those who expressed dissatisfaction through a "Bad" CSAT score demonstrated a mere 3% likelihood of refraining from future purchases.

In conclusion, measuring the financial impact of customer service is crucial for businesses to understand the value of their customer service efforts. While customer satisfaction scores are essential, they only tell part of the story. By linking metrics and understanding their effects on each other like customer lifetime value, revenue growth, and cost savings, businesses can understand more comprehensively how customer service impacts their revenue. 

Make your next move: get in touch 

At Tymely, we understand the importance of customer satisfaction and its impact on your business's success. That's why we offer an AI hybrid customer service to help businesses measure and improve their comprehensive metrics beyond just satisfaction scores. Our company can help take your customer service to the next level with 24/7 service and guarantees an average resolution time of 20 minutes. 

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It's game-changing to understand the financial impact of customer service on your business. We can assist you in achieving greater success through exceptional customer service at Tymely. Please contact us today to learn more.

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