Correlation Between Bad Customer Service and Overall Business Performance – An Analysis

There’s no doubt that customer service plays a vital role in bringing success to your business. It brings customer loyalty, free promotion in word-of-mouth advertising, and can even overcome poor marketing strategies if done right.

But just as excellent customer service provides your business with these benefits, bad customer service can also negatively impact your business in more ways than one. 

Which brings us to the question What differentiates good and bad customer service?

Excellent Customer Service vs. Bad Customer Service

Although often open for interpretation, good customer service is fundamentally characterized by a combination of well-trained employees and an efficient system of answering customer inquiries and solving their problems.

Conversely, bad customer service is when customers face an unpleasant experience with your business. This may include situations where they endure long waiting and response time only to pass around to multiple representatives.

It may also be instances where they had to recount their problems several times before finally getting an acceptable response due to your employee’s poor attention to detail, or lack of knowledge about the product. Or worse, an unprofessional and impersonal interaction with your customer.

How does bad customer service impact a business? 

In the age of the internet, businesses often address concerns online.

As much as customer service from official social media accounts can be readily available through the internet, these encounters with potential customers can quickly turn sour and create ‘customer service terrorists‘.

Even customers that defect to your business after an unfortunate customer service encounter. 

For example, a clothing brand took Twitter pride, and joy when members of the famous group wore their clothes. This group’s fans were ecstatic, retweeting how they’d like to see their favorite group work with the brand. A single tweet attracted more than a million potential customers.

However, things went downhill when that same brand’s Twitter handler created a poll on which group wore their clothes best, pitting groups and their fans against each other. To make matters worse, their replies were unprofessional.

And just like how one tweet attracted millions of potential customers, the series of bad customer service encounters created millions of customer terrorists. While they apologized, there is no denying that fans of the groups involved have defected the brand.

This is a prime example of the many effects of bad customer service on business. 

We can also see bad customer service effects financially. A Bielenberg study between business-to-business (B-to-B) customer service in 2006 revealed that poor customer service impacts Europe’s top 1000 businesses’ profits by over $11 billion every year.

The more unhappy customers due to bad customer service, the more likely they are to delay payment. This results in the inflation of write-offs and bad debts and creates a cash flow gap of about $220 billion – ultimately destroying profit.

Businesses rely on customers to run, and having bad customer service cuts the flow of people. This, in turn, impacts your business’s operation, accounting, strategies, finance, and marketing.

And if you still refuse to believe that bad customer service can affect your business, then here are the top five negative effects of bad customer service.

What are the effects of bad customer service?

1. Marred Reputation

Putting your business online makes it easier to interact with your customers. Still, it also makes it easier for you to make mistakes that will lead to your client’s bad customer service experience. These encounters can seriously damage your reputation.

Angry customers can easily post online a review of the bad customer service experience they received. It is made available to the whole world in a single click of the ‘submit’ button. This review can go viral, putting your business in a spotlight.

The spotlight can bring out more customers who may have shared a similar bad experience tarnishing your reputation more. The bad reviews stay on the internet forever, and it would take more than one tweet and a lot of money to fix the damage.

It would be difficult, if not impossible, to repair your business’s image. 

In a 2013 dimensional research, it is found out that 45% of the respondents share their bad customer service experiences on social media. From the same study, 95% of those surveyed share their bad experiences with at least one person.

And with a bad reputation, you lose customers, decrease word-of-mouth advertising, and an overall decrease in sales.

2. Fewer Conversions

You also lose potential customers, leads, and prospects when your customer service fails to accommodate them.

Putting your customers on hold for too long or passing them around to multiple people to answer one question or solve a simple problem from them can already be considered a bad customer service experience.

From the 2013 research, 72% of the respondents blamed their bad customer service experience on explaining their problem to multiple people. You lose potential customers, and your leads don’t convert with lousy customer service.

3. Depleted Customer Lifetime Value

Remember the clothing brand earlier? It took one tweet from their social media handler to tarnish the brand’s name, and within hours, their potential customers turned to ‘customer terrorists.’ 

81% of Americans will refuse to do business with a company again because of bad customer service, based on an American Express study.

Furthermore, 78% of consumers have canceled on a transaction because of bad customer service experience. 50% of those surveyed said that it takes two bad customer service experiences for them to stop doing business with a company.

These bad customer service experiences destroy the average customer lifetime value and translate to higher expenses to acquire new customers; therefore, it is vital to deliver excellent customer service and increase brand loyalty.

4. Reduced Employee Morale

An internal effect of bad customer service is that it also affects your employees. An excellent customer service department consists of an efficient system of answering customer concerns and well-trained employees.

If one or two of your employees are underperforming and giving your clients a bad customer service experience, they are burdening the rest of the team who are forced to handle the frustrated and angry customers.

\If this burden continues for a long time, your employees’ morale goes down together with the quality of service delivered. These can result in employees resigning or being fired, which results in searching for a new employee, which the company will need to train anew. 

5. Decreased Revenue and Profit

This one is obvious; if you lose customers, you lose sales. When you don’t have sales, then you don’t make a profit. Depending on how bad your reputation has become, your customers decrease, and the expenses to acquire new customers through new marketing schemes increase.

If a business tries to improve its reputation by boosting advertising and through public relations effort, these are additional expenses that are lost in vain if no effort is put to improve the customer service and get the lost customers back. 

The Ripple Effect

Bad customer service is like a drop of water that causes a ripple effect in your business. It starts with a single employee failing to answer a customer’s inquiry. It results in a bad review of your business. From one customer to five, tens, then thousands. Your reputation as a company is damaged, you lose current, potential, and future customers. You get more complaints, more angry customers who vent at your employees. Their morale spirals down, and they fail even more to deliver good customer service. Now you’re not only dealing with customer problems, but you also have an internal problem. With fewer customers and more expenses, the business falls short of profit—ultimately, it fails. 

The only way to stop this ripple effect is to prevent bad customer service. The second-best way is to correct it before it gets out of your control.