Why is customer service important?
Customer service is important because it's the direct connection between your customers and your business. It retains customers and extracts more value from them. By providing top-notch customer service, businesses can recoup customer acquisition costs. This helps to cultivate a loyal following that refers new customers, serves as case studies, and provides testimonials and reviews.
Investing in customer service helps activate your flywheel because loyal customers will help you acquire new customers free of charge by convincing prospects to interact with your brand. Their positive testimonials will be more effective than your current marketing efforts—and cheaper, too.
Financial Benefits of Excellent Customer Service
A company with excellent customer service has a team that does more than answer questions and solve customer issues. Providing excellent customer service can save—and make—a lot of money for a business. In fact, improving the customer experience can increase sales revenue by 2-7% and profitability by 1-2%.
Here are some additional financial benefits of excellent customer service.
1. Customer retention is cheaper than customer acquisition.
According to our research team, the customer acquisition cost (CAC)—how much it costs to acquire a new customer—is higher for a company that doesn't invest a small percentage of its budget in customer service. Ultimately, investing in customer service can decrease your churn rate. Decreasing churn rate reduces the amount you must spend on acquiring new customers and decreases the overall CAC.
That’s because it’s more profitable to pour efforts into retaining existing customers in the long run. A massive amount of sales will come from existing customers, and only 20% of your current customers will be the source of 80% of your company’s profits.
Pro Tip: Crafting a good customer experience improves customer retention. An excellent onboarding experience and customized offers can go a long way in keeping customers satisfied and around overall. McKinsey says companies with experience-led growth strategies see 5-10% higher wallet share and 20-30% higher satisfaction and engagement.
2. Customers will pay more to companies with better customer service.
It’s hard to put a price on great service, and an extraordinary number of customers are willing to pay a premium to get it. Customers place a high value on how a customer service team treats them, and companies will directly profit from positive customer service encounters. Over 80% of customers reported that receiving value during a service experience makes them more likely to repurchase even when given a chance to switch to a competitor.
In an era where companies are learning to prioritize customer service, any company that doesn't do so will crash and burn. Moreover, one positive experience could make them stick to a brand, whereas one negative interaction could send them running to a competitor.
Pro Tip: To offer the good customer service customers stick around for, continuously solve for the customer. This looks like being quick to bring resolutions, you’re empathetic during conversations, offering omnichannel support options, and actually using customer feedback to improve your practices so you always have your customer in mind. It sounds like a lot, but an all-in-one customer service solution makes the process that much easier.
3. Customer service grows customer lifetime value.
Customer lifetime value (CLV) is a pretty important metric when you're running a business. CLV represents the total revenue you can expect from a single customer account. Growing this value means your customers shop more frequently or spend more money at your business.
But businesses have room for improvement in utilizing this vital metric—only 42% of companies can measure customer lifetime value.
Investing in your customer service team is an excellent way to improve customer lifetime value. If customers have a great experience with your customer service and support teams, they'll be more likely to spend money with your company again. Or, at the very least, they'll share their positive experience with others, which builds rapport with your customer base.
Customer service makes new customers more trustworthy of your business and allows you to upsell and cross-sell additional products with less friction. New users will trust that your sales team is recommending products that truly fit their needs, creating a smoother buying experience for both the customer and your employees.
Pro Tip: To increase CLV, focus on building long-lasting, beneficial relationships with your customers. Offering an excellent product/service and excellent support when customers need help makes them more likely to purchase and repurchase what you offer. Every single positive experience increases the likelihood of their return and extends the length of your relationship, creating a higher CLV.
4. Customer service can lead to more revenue.
Business leaders understand that budgeting and other business decisions are about the bottom line. But customer service can also bring in revenue and impact the bottom line.
A report showed that customer experience leaders across all industries have 2X greater revenue growth than their peers, and this has been consistent since 2016.
Additionally, American companies reportedly lose about $136.8 billion yearly because of avoidable customer losses. Therefore, a positive or negative customer experience directly impacts your company’s revenue and growth.
How Customer Service Supports Marketing Efforts
Customer service team members are on the frontlines, communicating daily with current and potential customers. As a result of this proximity, customer service can offer valuable insight that can help improve marketing outcomes.
1. Customer service employees can offer important insights about customer experiences.
It doesn't matter how you perceive your brand. What matters is how your customer perceives it.
For instance, if you work for an athletic wear company, you might associate your brand with fitness, health and wellness, and people who play sports.
However, your customers may purchase from you because they associate your brand with leisure, comfort, and attractiveness. So, you should align your marketing with those values as well.
Your customer service team can answer many of these probing questions for you. Rather than spending time and money surveying customers constantly, you can have your customer service employees simply ask these questions while interacting with customers. Their response can give you many insights into improving your products, marketing, goals, and employee training.
The more you improve the customer experience, the harder your employees will work. Research shows that companies that invest in customer experience also see employee engagement rates increase by an average of 20%.
2. Proactive customer service creates marketing opportunities.
Consider adopting proactive customer service if you're looking for a cost-effective way to invest in your business. Rather than waiting for customers to report issues, this approach reaches out to them before they know the issues exist. This tells customers you're constantly working to remove roadblocks from their user experience.
But proactive customer service isn't only used for customer delight. It's also an effective marketing tool for introducing and promoting new products and services. For example, if you create a new feature that solves a common problem with your product, your customer service team can refer it to your customers.
They can use your CRM or ticketing system to look up customers who have had this problem in the past, reach out to them via the service ticket, and introduce the new feature and its benefits. This can be more effective than a sales pitch because customers feel the service rep understands their issue after troubleshooting it.
Current data shows that proactive customer service is more crucial than ever. Customers of every industry are accustomed to the fast-paced digital revolution and expect customer service teams to be speedy in resolving their issues.
A main customer frustration is long wait times when seeking support, and their rage only increases the longer they wait.
3. Personalized customer service can improve your online conversion rate.
Your online conversion rate can improve by 8% when you include personalized consumer experiences. A higher conversion rate should lead to more sales and more revenue. Customer service keeps your flywheel moving, like marketing and sales.
But service that isn’t personalized and makes customers feel like no more than a ticket number in the system harms customer retention. 62% of consumers think businesses can do more in terms of personalization because they’d prefer to feel like an experience is all about them.
Data supports that great customer service is an expectation, not a "nice-to-have." You'll attract new customers, prevent customer churn, and build your brand reputation and image with excellent customer service.
Customer Service’s Impact on Brand Image
Every company is known for its customer service to some degree. Of course, you always want a positive brand image and customer service can be a significant determining factor.
1. Customer service affects your brand image and loyalty potential.
In many ways, your customer service team is the face of your brand. Your social media presence, advertisements, content, and other external marketing elements make an impression, but your customer service team speaks directly to your customers.
They are responsible for representing your brand when interacting with potential buyers. Customer service can break a company’s chance to turn a potential customer into a loyal customer. After a positive customer service experience, 89% of consumers report they are more likely to return and make another purchase. While making apurchasedecision, a critical factor for66% of customersis the customer service reputation of the brand. When they receive poor customer service, 61% of consumers say they have cut ties with a brand.
Customer service is a key player when it comes to building your brand image and brand loyalty. Nearly three out of five consumers report that good customer service is vital to feel commitment toward a brand. Therefore, investing in a customer service team that accurately represents your mission and values is a worthy investment and a wise branding strategy.
2. Excellent customer service will protect relationships with customers who experience a mistake down the road.
When customers have a poor customer service experience, they're more likely to quickly share about it and leave the company than in previous years. And if you work in the B2B space, data shows that 51% of B2B companies start to avoid vendors after a poor customer service experience. However, if your company provides excellent customer service, 78% of consumers would do business with a company again after a mistake.
Additionally, only one in five consumers will forgive a bad experience at a company whose overall customer service they rate as “very poor,” while nearly 80% will forgive a bad experience if they rate the service team as “very good.”
3. A positive customer service reputation makes people more likely to do business with you.
Consumers consider customer service when they're making purchasing decisions. In fact, 78% of consumers use customer service to decide whether or not to do business with a company. This means that your company’s reputation for customer service will impact a large majority of potential customers.
Additionally, customer service doesn't begin and end with your frontline reps. The customer service potential customers experience during the sales process will also impact their purchasing decisions. Therefore, delivering positive customer service experiences should be the goal for any customer-facing role.
The Power of Well-Equipped Employees
If a company doesn’t appreciate and properly resource its customer service team, it will show in the quality of service that customers receive. But when companies provide the proper training, technology, and work environment, customer service employees are a powerful force to turn satisfied customers into booming businesses.
1. Happy customer service employees will create happy customers.
Studies consistently show that happy employees are good for business. For example, recent research that studied customer service employees in a call center setting reported that happy employees were 13% more productive.
Despite this fact, not enough companies take employee satisfaction seriously—particularly in the case of customer service employees. According to our 2022 State of Customer Service report, almost 40% of customer service leaders say that their company views customer service as an expense rather than a driver for growth.
Companies can support their customer service team with the resources, technology, and respect they need to get more happy customers. When customer service staff are equipped to do their jobs well, they are more comfortable and motivated, and your customers are too.
2. Happy customers will refer others.
When humans have a memorable experience—good or bad—it’s natural to want to shout about it from the rooftops. But, of course, today’s rooftops are review websites and social media, with 55% of consumers sharing their purchases socially on Facebook, Twitter, Pinterest, and other social sites.
For better or worse, your most impacted customers will do word-of-mouth advertising for you. In fact, 66% of salespeople say that the highest quality leads come from existing customers. Since great customer service translates to happy customers, your customer service team can be a major catalyst for cheap promotion through positive word-of-mouth and referrals.
Much like your most loyal customers, referred customers are a business treasure. Referred customers:
- Amount to 5 to 15% of new customers
- Drive $6 trillion of annual consumer spending
- Can offer a 25x return on ad spend
"The purpose of a business is to create a customer who creates customers."
–Shiv Singh, Strategic Advisor
3. Good customer service encourages customers to remain loyal.
As we’ve covered, it's much cheaper to retain an old customer than to acquire a new one. So in this sense, the higher a customer's lifetime value—the total revenue a company can expect a single customer to generate throughout their relationship with that company—the higher the profit for your company.
In comparison to hundreds of possible competitors with similar products and services, your company has to do more than relish the exciting features of your products. You can differentiate your company from your competitors by providing stellar customer service. This is especially crucial when it’s time to launch a new product or service.
Your existing customers are 50% more likely to try a new product and spend 31% more money on it than a new customer, while new customers are only 5-20% likely to buy a product. But for those existing customers to stay long enough to consider a new product, it takes effort via customer service to keep them satisfied. 71% of consumers cited poor customer service as the reason they ended a relationship with a company.
Conversely, when your company’s customer service is excellent, you’re more likely to see your customers stick around and eventually try more of your offerings.
Loyalty is rooted in trust, and customers can trust real-life humans more than the ideas and values of a brand. So, by interacting with your customer service team, those customers can hopefully build life-long relationships with your business.
What Businesses Need to Improve Customer Service
Beyond understanding how essential it is to put considerable effort into building a solid customer service team, companies need to provide employees with all the tools they need to deliver the type of consistent, proactive customer service required today.
Here are a few stats to keep in mind when improving your customer service team:
1. Customers expect high-quality service.
People don't just expect your business to have a customer service team; they anticipate your customer service team to be world-class and ready to help at a moment's notice.
In fact, according to new data gathered after the COVID-19 pandemic, more than half of those surveyed (58%) said their customer service expectations are higher today than they were a year prior.
Customers demand higher quality customer service: 66% said they would switch brands if they felt they were being "treated like a number, not an individual." And there’s plenty of room for businesses to grow, as 71% of customers say they want a consistent experience across channels, but only 29% say they get it.
Customers now have more options than ever before, and they're not afraid to take their business elsewhere if unsatisfied with their experience. So it's now on brands to meet customer expectations if they want to attract and retain loyal customers.
2. Businesses need omnichannel solutions.
Before COVID-19, businesses gradually explored new, digital ways to engage and support customers. But once the pandemic hit, this timeline accelerated significantly, and it was no longer a commodity for businesses to communicate with customers via social media, live chat, or video calls.
These communication channels appear to be here to stay for the foreseeable future. But, as we shared in our 2022 State of Customer Service report, only 50% of companies have enabled their service teams with the most basic service features a CRM can provide: a help desk, knowledge base, and shared email capabilities. As a result, many businesses have much catching up to do to provide their customer service teams with the tools they need to serve customers well across every channel.
Our State of Service report also found that all of the high-growth companies surveyed implemented several channels and tools, empowering their customer service teams and improved customer service.
Customers not only enjoy using these channels but, over time, they’ll expect them as a standard in the customer service industry. As a result, businesses need to invest in omnichannel solutions to link these new mediums together and create a seamless customer service experience.
The image below explains how omnichannel experiences work:
Rather than having each channel operate independently, the channels link together so they can share messages and information freely. That way, customers don’t have to navigate away from what they’re doing to get help from your business.
Instead, any time they need help, they can reach out on any channel of their choice and will get an immediate, reliable response.
3. Excellent customer service is a competitive advantage.
No matter your industry, you want your business to stand out. After all, nobody strives to be the "second-best" at something. Instead, you want to be better than every other company you're competing with and want your customers to know it, too. That's the key to keeping customers loyal and getting them to interact with your brand continuously.
Customer service can be an excellent differentiator for your company. But churn occurs when a customer stops doing business with a brand and it’s often because of a poor customer service experience. At least 67% of this churn is preventable if the customer's problem is resolved during their first interaction.That means if you provide excellent customer service, you'll not only retain your customers but also acquire your competitors'.
It's undeniable that a well-trained, positive customer service team can make your company the best version of itself. Their ability to communicate directly with customers can revolutionize your company and grow your customer base.
“We see our customers as invited guests to a party, and we are the hosts.
It's our job every day to make every important aspect of the customer experience a little bit better.” –Jeff Bezos, Amazon Founder
Invest in Your Customer Service Team Today
There’s a strong, data-based case for the positive, multi-layered impact that great customer service can have on a business. The proof is in the research and the results: one significant aspect of a thriving business is to put effort and resources into recruiting and training top customer service talent.
So, now that you’ve seen the numbers, what will you do to raise the standard of customer service at your company?
Editor's note: This post was originally published in October 2018 and has been updated for comprehensiveness.
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