The Impact of Customer Service on the Customer Life Cycle

Customer service can make or break the life cycle of a customer. When your service is good, you are far more likely to see a long relationship with your customers. But how does a business measure its customer service? There are many metrics with which to gauge the success of your business – Net Profit Margin, Monthly Recurring Revenue (MRR), Net Promoter Score, and Customer Acquisition Cost (CAC). While these are all important metrics to consider, in today’s market, one is becoming far more important. 

Customer Lifetime Value

According to Hubspot, customer lifetime value is “one of the most important metrics to measure at any growing company.” Forbes goes even further, and has called CLV “the only metric that matters.”

Before analyzing CLV, one must first understand the customer lifecycle.

The Six Stages of the Customer Lifecycle

The goal of every business is to convert visitors into paying customers. Another metric that businesses use to gauge their success is conversion rates. Of course, not all customers are created equal, and some may end up being low-quality consumers who make only one purchase and move on. 

Because of this, it is important to understand the customer lifecycle – the five stages of the customer journey. Understanding these stages can help a business to better optimize their conversion process and build stronger customer relationships, brand loyalty and, ultimately, increase customer retention.

Reach

The first stage of the customer journey is otherwise known as awareness – when a potential customer first makes contact with a business. Reach is often a direct result of marketing, such as social media posts or print ads, but can be as a result of word-of-mouth or similar referral. 

Acquisition

During the acquisition phase, it is the company’s goal to convert that visitor into a paying customer. You need to help the visitor to understand how your product or service will fulfill their need or desire. Basically, you should show how they will benefit from becoming a customer. Creating an effective buyer persona will help when trying to make the acquisition phase more persuasive. 

Conversion

This is the stage when a lead becomes a paying customer.  It is the point at which a business must focus on providing value and building relationships, rather than simply selling a product. Customers need to feel valued and have good experiences with a brand in order to stay loyal.

Retention

Retention is possibly the most important stage in the customer lifecycle, and the one most often forgotten about. After a sale has occurred, it is important for businesses to build and maintain relationships with that customer and continue to bring value, so that they go on to make further purchases. 

Customer retention should be a top priority for businesses, as studies have shown that it is far more profitable to continue selling to existing customers than it is to continuously acquire new ones.

Loyalty

Ultimately, the goal of understanding the customer lifecycle is to build loyalty – to turn a visitor into a regular customer, who makes purchases often and recommends the business to their friends and family. Loyal customers help to build your brand through word-of-mouth and are prime candidates to become brand advocates. Of course, not every customer will become an advocate.

Brand Advocacy

Brand advocacy is rapidly becoming the most popular form of “word-of-mouth marketing” for companies the world over. Essentially, it’s a low cost way to market your brand based almost solely on customers that have experienced top quality products or services.  A brand advocate is a person – whether it be an employee, influencer, or customer – who offers favorable feedback and is essential for company growth. Studies show that brand advocates have 50% more influence in a purchase decision than any run-of-the-mill customer. 

Understanding Customer Lifetime Value

The truth of the matter is that customers today just aren’t worth the money businesses spend on them. Acquired customers are a drop in the bucket, and retained or loyal customers are where the profit lies. The importance of these two stages can be seen by calculating customer lifetime value.

CLV is the average amount a customer will spend with your business throughout their entire life cycle. For instance, if a consumer continues to purchase your product or service for a period of ten years, spending $10 each year, his CLV would be $100, minus any money spent to acquire them.

As an example, look at the CLV for a customer on an e-commerce store. If the store spends $5 in advertising to attract the customer, and the customer spends an average of $100 per year for 10 years, their lifetime value will be $995. 

While this is an oversimplified example, it illustrates an important point.

If that same e-commerce store had instead sold the same volume of product to 100 different customers, spending $5 dollars to attract each customer, the profit margins would be much lower. Of course, the more a business must spend on lead generation, the less profit they will make. 

Customer lifetime value is important because it can cost up to five times more to attract new customers than it does to retain existing ones. Despite this, it was stated in the 2015 Retention Marketing Survey that around 60% of retailers report a customer retention rate of less than 20%.

According to Fred Reichheld, author of the Loyalty Effect, an increase of only 5% in customer retention can lead to a 25% to 100% increase in profits. High CLV means that each customer generates more revenue for the business.

Improving customer lifetime value and lengthening the customer lifecycle requires a variable approach. It hinges on multiple factors across all facets of the business, from marketing to customer support.

Kit Smith, content writer at Brandwatch, states, “Use customer service to drive customer experience. Every customer interaction with your company is a chance to add value. Research shows how important customer service is for retaining customers and gaining advocates.”

How Customer Service Affects CLV

The customer experience is a consumer’s overall sentiment of each interaction with a company, running from the first point of contact to any dealings with customer service. Of course, in the reach, acquisition, and conversion stages, a negative experience with marketing can cause a visitor to abandon their purchase. After the sale has been completed, a negative experience with customer service could have a much more serious effect. 

According to a survey of 1,044 U.S customers by Zendesk, 52% of respondents claimed that they would dissuade their friends and family from purchasing products or services from a company after receiving bad customer service. Similarly, good customer service would cause 67% of people to recommend products or services.

According to Zendesk, 87% of respondents revealed that their positive experience with a company’s customer service changed future buying behavior. 67% would recommend products or services to other people, while 54% said they would purchase or use more products and services from that company. 39% said they would consider purchasing or using more from that company. 

Negative experiences with customer service seem to have a far more dramatic effect on purchase behavior, though. According to the Harvard Business Review, 48% of customers who had a negative experience with a company told 10 or more others. Further, consumers are twice as likely to share bad customer service experiences than they are the positive ones. 

Studies have shown that, within one day of experiencing poor customer service, 47% of customers will take their business to a competitor. Of nearly all aspects of a business, customer service is arguably one of the most important. As evidenced by countless studies and statistics, good customer service can propel a company forward, while poor customer service can create dramatic setbacks.

Improving Customer Service to Drive Customer Success and Increase CLV

While customer experience is affected by each facet of your business, from marketing to sales and customer service, increasing CLV often falls to the customer service team. 

Ensure Customer Experience Aligns With What is Communicated Through Sales and Marketing

It is important to know exactly what a customer’s real experiences have been in dealing with a company. Customer service is often the best way to provide insight into this, as they are the first line of communication for any frustration or feedback. Hearing honest feedback from consumers, they can provide a perspective on what the consumer’s true frustrations and pain points are. 

With information such as which questions are most often asked in support calls, or which forum topics receive the most activity, they can provide valuable feedback on how to improve every aspect of the customer journey. 

Businesses must also ensure that their customer service team has the right skills and knowledge to manage the customer’s needs.

Skills to Improve Customer Service

Empathy, Patience and Consistency:
A good customer service agent must have the social skills required to deal with customers on every end of the spectrum. While some will be irate from the get-go, others will ask countless questions, and yet others will be chatty. Agents must be able to handle all of them with the same level of service. 

Adaptability:
Again, agents will need to deal with a variety of different customer queries and moods. They must be able to adapt quickly to shifts in tone, and must be able to handle surprises.

Clear Communication:
Agents must be able to clearly convey to customers what they mean and must stay positive and cheerful at all times. Misunderstandings can cause many problems down the road. 

Work Ethic:
Customers appreciate customer service agents who are able to see their problem through to a resolution. No one likes to be passed from agent to agent. On the other hand, agents must also have good time management skills, and cannot keep other customers waiting for too long.

Knowledge:
Customers will often turn to customer service agents for queries about your product or service, and so agents must be knowledgeable enough to respond to general inquiries. They must also know where to direct questions which are too technical or detailed. 

The Seekify Solution

When consumers were surveyed about customer service experiences which still impacted them, 46% remembered negative experiences from more than two years ago. By contrast, only 21% remembered good experiences. Customer service has a direct impact on the customer experience, and thus, the expected CLV. 

Seekify offers contextual training for call center agents, designed to help them deliver a superior customer experience, as well as Customer Experience (CX) Automation platform which provides actionable insights based on aggregate data. 

If you are interested in delivering a WOW customer experience, please contact us at Seekify today.   

Arihant is an entrepreneur at heart with a passion for building on-demand SaaS product companies to help businesses grow globally.

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