Why Customer Service Is Important: 3 Key Reasons

Customer service is an essential aspect of modern business, influencing how customers perceive and interact with a brand. It’s how businesses:

Communicate with customers

Understand their needs and expectations

Deliver value to them

Therefore, customer service is important for satisfying customers, creating a competitive advantage, and driving business growth.

Why is customer service important?

Customer service creates positive experiences that make customers feel valued, respected, and satisfied.

Great customer service has three major impacts on a business:

1. Customer service increases brand loyalty

Customer service significantly impact how customers perceive and interact with a brand. According to a report by PwC, 73% of consumers say customer experience is a key factor in their purchasing decisions, and 65% of consumers say a positive experience with a brand is more influential than great advertising.

Customers who are satisfied with the service they receive are more likely to become loyal to the brand and recommend it to others. According to a survey by Microsoft, 96% of consumers say customer service is essential in their choice of loyalty to a brand.

2. Customer service improves customer retention

Customers who are happy with the service they receive are more likely to stay with the brand and buy more products or services. According to a study by Bain & Company, increasing customer retention rates by 5% can increase profits by 25% to 95%.

Customer service can also affect customer loyalty, retention, and advocacy. According to a survey by Zendesk:

74% of customers say they are loyal to a brand

Roughly half of customers say they have switched brands because of poor customer service

3. Customer service increases profitability

Loyal and retained customers are more likely to generate revenue for the business as they spend more, buy more often, and refer more customers. According to a report by American Express, American customers with excellent service experiences spend 17% more than those with poor ones.

Customer service is not only a way to solve problems and provide information, but it’s also a way to build relationships, trust, and customer loyalty.

Financial benefits of exceptional customer service

One of the benefits of customer service is that it can help businesses retain existing customers, which is more cost-effective than acquiring new ones. According to Harvard Business Review, acquiring a new customer can be 5 to 25 times more expensive than retaining an existing one. This is because acquiring a new customer involves costs such as:

Marketing

Advertising

Sales

Incentives

Another benefit of customer service is that it can increase the willingness of customers to pay more for superior service:

Shep Hyken found that 58% of consumers are willing to pay more for a better customer experience. This means that businesses that provide great customer service can charge higher prices and increase their revenue.

A 5% increase in customer retention can result in a 95% increase in profit.

Customer service can help businesses save money and generate more revenue by retaining existing customers and increasing their willingness to pay. Customer service satisfies customers and creates value for the business.

Customer service drives Customer Lifetime Value and loyalty

Customer Lifetime Value (CLV) is a metric that measures the total revenue a business can expect to generate from a single customer over the course of their relationship. It is an important indicator of customer loyalty, profitability, and growth potential.

CLV can be calculated by multiplying the average revenue per customer by the average retention rate and dividing by the average churn rate. Alternatively, it can be estimated by multiplying the average revenue per customer by the average number of purchases and the average customer lifespan.

There are different ways to calculate customer lifetime value (CLV), depending on the data and assumptions available. However, the most common and basic formula is:

Customer Lifetime Value = Customer Value x Average Customer Lifespan

To find customer value, multiply the average purchase value by the average purchase frequency rate. To find the average customer lifespan, you must divide 1 by the churn rate. Therefore, the formula can be rewritten as:

Customer Lifetime Value = (Average Purchase Value x Average Purchase Frequency Rate) x (1 / Churn Rate)

CLV is important because it helps businesses understand how much they can invest in acquiring and retaining customers and how to optimize their marketing, sales, and service strategies. By increasing CLV, businesses can increase their return on investment (ROI) and reduce customer acquisition costs (CAC).

Read: The 165 Most Common Business Abbreviations & Acronyms

One of the ways to increase CLV is to provide excellent customer service. Customer service can affect customer satisfaction, loyalty, retention, and referrals, which are all factors that influence CLV.

Key stats on CLV:

Increasing customer retention rates by 5% can increase profits by 25% to 95%.

88% of consumers trust recommendations from friends and family more than any other form of advertising.

Therefore, customer service is not only a way to provide value to customers but also a way to increase the value of customers to the business. Customer service can help businesses improve their CLV and customer loyalty, leading to long-term success and growth.

Customer service generates revenue

One of the main benefits of customer service is that it can help businesses achieve greater revenue growth by improving customer experience. The customer experience (CX) is the sum of all customers’ interactions and emotions with a brand throughout their journey. CX can affect customer satisfaction, loyalty, retention, and advocacy, which are all key drivers of revenue and profitability.

' + '