Published on September 22, 2014
A common saying of sales driven entrepreneurs is that sales cures all. What if it doesn’t, though? It’s hard to dispute that sales are necessary for a company to be successful. That said, the culture of wasting gigantic sums to create a sales apparatus is unhealthy and killing companies’ bottom lines.
Just Because The Money Is Gone, Doesn’t Mean You Spent It Correctly
Last year Box spent $171 million in marketing and sales with a return (that year) of $124 million in revenue. That is negative $47 million. Hopefully those costs will lead to more revenue in the long term, but it’s clearly costing Box a lot in the short term.
The flip side of that is a company like Atlassian, which spent $32 million in marketing and sales in the same period to the tune of $160 million in revenue (for you math majors, that’s positive $128 million).
Where is the disconnect? Forbes’s 3rd ranked Social Salesperson in the world Jill Rowley recently did an interview with us at Help.com discussing the major disconnect between how companies do sales and how their customers want to be sold to. In the interview, Jill discussed how companies believe that spending tremendous amounts of money on sales and getting in front of customers is what they need to do to be successful, but customers prefer to research on their own, read reviews, and look at data before ever contacting sales, meaning much of the money spent on acquiring customers is useless unless peer reviews and empirical data steer the customer to that company.
Given how much more valuable an existing customer is than a new one, it stands to reason that resources allocated to current customers would be substantial. That’s not the case though, as Tom Eggemeier, EVP Global Sales at Genesys, showed when he broke down worldwide company budgets at G-Force conference:
According to Mr. Eggemeier’s numbers, the process of closing a deal is 55.55 times more costly to a company than keeping the customer once the deal is closed.
Given the disparity in budget allocation between marketing and advertising versus customer service, it stands to reason that a similar disparity exists between the pay of employees in those departments.
With those numbers in mind, here are ten facts that help demonstrate that customer service is more valuable than sales.
1. It is 6-7x more expensive to get a new customer than keep an old one.
According to Adobe, 80% of company marketing budgets are spent on outbound ads, but 40% of new revenue comes from existing customers. Companies spend just 2% of their annual budget on existing customer relationships.
2. A 10% increase in customer retention levels will result in a 30% increase in the value of a company.
Let’s say Oracle cloud, which has 10,000 customers, suffers the industry average 5% churn annually. That means they lose 500 customers. If they decrease their losses to merely 450 customers, the value of the cloud business goes from $1.5 billion to $1.95 billion. By this metric, customer service (average 2% of a yearly budget) can increase the value of a company 30%. Not a bad return on an investment.
4. By 2020, customer experience will overtake price and product as the key brand differentiator.
82% of customers say how quickly their problem is resolved dictates a good or bad customer service experience, but 42% of reps can’t resolve customer issues due to internal red tape or outdated systems.
5. 57% of the sales decision is made before sales is involved.
Sales, which is 55.55 times more costly than servicing customers that have already invested in your company, is involved for less than half of the process of buying something. Worth it?
6. A customer who is happy with the customer service they receive will tell between 4 and 6 people.
Sales reps have a 25% close rate (good sales reps). Assuming customer service reps make 80% of customers happy (200/250 per rep), they will each tell four people, which means 800 people hear about the product due to customer service reps, 200 of whom will become customers based on sales close rates.
7. 9 out of 10 customers would pay more for superior customer service.
When you consider that an existing customer costs 6-7x less than a new customer, this comes out to existing customers (who are already cheaper) being willing to pay more money for the same products to ensure good service. That equals some major revenue with low costs attached to earning it.
Customer service reps, with no marketing or sales costs, can increase the value of 90% of a customer base simply by being empowered to give good service.
Do you think things need to change in sales and customer service? Tell us about it in the comments or tweet us at @helpdotcom.