Call Handling
7 Undeniable reasons customer service is essential to your business
Quick Summary
Keeping customers is worth more than winning them, and the research supports that. What the research does not support is most of the precise percentages you see quoted, several of which come from a single study of three companies published in 1990.
- The famous “5% more retention equals 25% more profit” figure comes from Reichheld and Sasser in Harvard Business Review, 1990
- That study found gains of 25% to 85%, depending on the company. The commonly quoted 95% is not in it.
- HBR itself describes the “5 to 25 times cheaper to retain” figure as a rough guide, not a measurement
- The direction is well supported. The decimal points are not, so plan with the direction.
Keeping a customer costs less than finding a new one
Winning a new customer is commonly said to cost five to twenty-five times more than keeping an existing one. The range is enormous, which tells you it is a rough guide rather than a measurement.
Harvard Business Review, which published the figures in 2014, was honest about that. They noted it depends on which study you believe and which industry you are in.
For your purposes the vagueness hardly matters. Whether the real answer is five times or twenty-five, the instruction is the same: look after the customers you already have before spending on new ones.
Returning customers are worth more than new ones
The best-known evidence here comes from a 1990 Harvard Business Review paper by Frederick Reichheld and Earl Sasser. They found that cutting customer defections by 5% raised profits by between 25% and 85%, depending on the business.
Three details usually disappear in the retelling.
What people say | What the study found | The gap |
“5% retention lifts profit 25-95%” | Range was 25% to 85% | The 95% appeared later |
Applies to all businesses | Studied specific service firms | Bank, insurer, car servicing |
Recent research | Published in 1990 | Older than most businesses |
The individual results were 85% in one bank branch system, 50% at an insurance brokerage, and 30% in a car servicing chain. Three companies, three very different answers.
That spread is the useful part. The effect is real, and its size depends heavily on what you sell. A figure ranging from 30% to 85% across three firms is not a rule you can apply to yours.
Your service is what people judge you on
Customers cannot see your values statement or your brand guidelines. They judge you on what happens when they get in touch, and particularly on what happens when something goes wrong.
This is the reason worth the least evidence and the most attention, because everybody already knows it and very few businesses act on it.
Think about the last company you stopped using. It was rarely the product. It was usually somebody who did not call back.
See how Answerpoint handles this for UK businesses
Every call answered live, in your business name, from £19.99/month.
Happy customers bring you other customers
Word of mouth remains the cheapest form of acquisition available to a small business, and it is produced almost entirely by service rather than marketing. People recommend suppliers they trust to look after their friends.
Be careful with the survey figures on this one. Studies putting a precise percentage on how many customers recommend a brand are usually commissioned by companies selling referral software.
The mechanism is not in doubt, though. Ask your own customers how they found you and count how many say somebody told them about you.
Slow replies lose more work than poor manners
For most small businesses the biggest service gap is not politeness or process. It is the time between somebody getting in touch and somebody getting back to them.
Nobody loses a customer for being insufficiently charming on the phone. They lose them by not answering it.
This is also the cheapest thing on the list to fix, which is why it is worth measuring before anything else. An enquiry answered in ten minutes, and the same enquiry answered in two days are not the same enquiry.
Your front line knows things your marketing does not
The people who answer your calls and emails hear the real reasons customers buy from you, which are frequently not the reasons you put on your website.
A sportswear company might see itself as being about performance and fitness. Its customers might be buying for comfort. The people taking the calls will know that long before anyone in marketing does.
Ask them. It costs nothing, and it is better research than most businesses ever pay for.
Fixing service is cheaper than advertising for replacements
Every customer you lose has to be replaced and replacing them costs money you could have spent on almost anything else. Fixing the leak is nearly always cheaper than topping up the bucket.
For most small businesses the leaks are unglamorous and specific: unanswered phones, slow email replies, and problems that take three attempts to resolve.
None of that requires a strategy. It requires somebody to notice and deal with it.
Unanswered calls are one of the more common leaks, particularly outside working hours. Our guide on what phone interruptions really cost covers when that is worth fixing and when it is not.
Which numbers should you not trust?
Be careful with any customer service statistic that has no date, no named study, or no sample size. Those three gaps account for most of the figures in circulation, and they get copied between blogs until they look like established fact.
Warning signs worth spotting:
- No year attached. Consumer behaviors has changed enormously since 2011. An undated statistic is usually an old one.
- “Studies show” with no study named. If the writer could name it, they would have.
- Suspiciously round or dramatic. Real research produces awkward numbers like 37.8%, not a tidy 90%.
- Published by a company selling the solution. Not automatically wrong but check whether anyone independent found the same thing.
We should apply that last test to ourselves. We sell call answering, so any statistic we quote about missed calls deserves the same scrutiny. Where we have used one we could not trace properly, we have said so in the relevant article.
What does this mean for a small business?
It means the case for looking after existing customers is strong, but you should build your plan on your own numbers rather than someone else’s percentages. Your repeat rate and your average order value are more useful than any published figure.
The practical version is fairly plain.
Find out what proportion of your customers come back. Find out what a returning customer spends compared with a new one. Then work out what you are currently doing that loses people, which for most small businesses is not complicated: slow replies, unanswered phones, and problems that take three attempts to sort out.
Those are cheap to fix compared with advertising for replacements. That is the real argument, and it does not need statistics.
Unanswered calls are one of the more common leaks, particularly outside working hours. Our guide on what phone interruptions really cost covers when that is worth fixing and when it is not.
How do you measure it in your own business?
Track four things for three months. They will tell you more about your service than any industry report, because they describe your actual customers instead of an average across thousands of unrelated businesses.
- Repeat purchase rate. What share of customers buy from you more than once? This is your retention number, and most owners have never calculated it.
- Where enquiries stop. Count how many people contact you and never buy. Then find out at which step they disappeared.
- Response time. How long between an enquiry arriving and someone replying? Measure it honestly, including evenings and weekends.
- Why people leave. Ask the ones who stop buying. A short email gets more answers than you would expect, and the reasons are rarely what you assumed.
Three months of that data beats every percentage in this article, including the ones we have gone to the trouble of verifying.
Frequently asked questions
1. Is it true that a 5% increase in retention raises profits by 25%?
It comes from a 1990 Harvard Business Review study by Reichheld and Sasser, which found gains of 25% to 85% across three service companies. The direction is well supported, but the precise figure depends heavily on your industry.
2. How much cheaper is it to keep a customer than win a new one?
The commonly cited range is five to twenty-five times cheaper. Harvard Business Review, which published it, acknowledged the figure varies by industry and by study. Treat it as a rough guide rather than a calculation.
3. Do customers really pay more for better service?
Some do, mainly for expensive, urgent or hard-to-reverse purchases. The widely quoted survey figures are old and often commissioned by interested parties, and people frequently choose the cheaper option in practice.
4. What is the cheapest way to improve customer service?
Reply faster. For most small businesses the biggest service gap is not politeness or process, it is the time between someone getting in touch and someone getting back to them.
5. How do I know if my customer service costs me money?
Count how many enquiries never turn into customers, then find out where they dropped off. If a large share disappear before anyone speaks to them, the problem is availability rather than quality.
Conclusion
Good customer service is worth investing in, and you do not need a percentage to justify it. Customers who feel looked after coming back, and coming back is cheaper for you than advertising for their replacement.
What we would avoid is building a business case on numbers nobody can source. Work out your own repeat rate, find out where enquiries go cold, and fix the biggest leak first. That is a stronger foundation than statistics from 1990 about a bank.
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