How Much Should Businesses Spend on Support Services?
Sunday, October 15, 2017
It you were to listen to the average CEO, you'd probably hear him say that one of his highest priorities is to keep his customers happy. After all, a happy customer is a repeat customer, and the acquisition of new customers can be quite expensive.
That said, behind closed doors most CEOs will candidly admit that customers can be a real pain. They have problems and expect the vendor to supply a continuous stream of solutions. In many cases this becomes a very expensive endeavor. Worse yet, the benefits of excellent support can be difficult to measure and rarely become apparent until a significant period of time has passed.
As a result, support activities and roles are rarely treated as profit drivers. Rather, they are seen as cost centers that detract from the bottom line, ripe for death by a thousand cuts by managers who are desperate to maximize measures of short term profits.
For many years, businesses would cut spending on support activities indiscriminately with across the board cuts.
The effects of such actions were problematic to say the least. Managers soon realized that some customers were more valuable than others due to the amount of revenue each generated.
For this reason, many companies began to offer higher quality (and more expensive) levels of support to more profitable accounts. While this approach has worked to the benefit of many vendors, it is not a perfect solution. The problem is that it uses a proxy metric in place of an actual metric. It makes the implicit assumption that each dollar spent on a large account will offer a greater return on investment than spending on smaller accounts. The validity of this assumption likely differs by industry, but will probably be a fairly reasonable metric for most.
The use of a combination of metrics would likely yield better results. I discovered one such measure just a few weeks ago. Before I reveal its identity, let me tell you a little story about my website.
Ready for a big marketing push, I checked my website one last time and discovered much to my horror that the entire site was unavailable. For more than twenty-four hours I was forced to devote much of my time to following up on support tickets and trying to explain technical concepts to a very poorly trained help desk staff.
In the process of my investigation, I noticed something interesting: my year of prepaid hosting was just about up. Up until the server issues, I was willing to accept an autorenewal at an above-market rate because of the switching costs involved in configuring an account with a new company, testing my web pages and evaluating the potential vendors.
Because my contract was for a relatively small sum, the company had devoted the smallest modicum of resources to support my contract. Was it right to do so? Perhaps.
In truth, the question as to whether or not I renewed my hosting contract probably didn't keep the CEO up at night. It may not have made any economic sense to offer any highly trained support to me at all.
But in another way, I was a prime candidate for high level support services, because I was far more likely to switch to another provider than almost every one of their other customers. Why? Because my automatic renewal period was only a few weeks away.
As such, I considered my minimal sunk costs (yes, people are irrational and do consider sunk costs) as well as my minimal opportunity costs (I could simply switch to another hosting firm rather than spend my time dealing with low quality support).
By any stretch of the imagination, I had no reason to stick around other than a sense of loyalty (which I certainly didn't feel at the moment).
In short, I was like a world class athlete with free agent status and a slew of interested teams knocking at my door.
Companies like my host would do well to segregate those customers at the edge, folks that are likely to leave due to an open problem, and consider increasing spending to make them happy. Every dollar spent focusing on customers with a contract renewal coming up, for instance, could be extremely effective in changing customer perceptions due to the recency effect that states that experiences at the end of an interaction are weighted more highly in customers' minds than interactions at earlier dates.
In many cases the correct answer to how much should be spent to support a customer involves not only who the customer is, but when the customer is asking for support.