How much is word-of-mouth worth to your business

Many small businesses operating on a local basis will gain a significant proportion of their income by word of mouth recommendation from existing and prior customers. These advocates are an immensely valuable asset, saving you valuable time and money in sourcing that all important next contract. But what happens when something goes wrong, how much effort should you put into retaining that all important good will and subsequent valuable personal reccommedation?

Some months ago friends of ours needed to have a bathroom adapted to better cater for their needs. They did just as most would advise and got several quotes and talked to neighbours to find out if they knew a plumber they could recommend. After due consideration they chose a small private contractor who started work on the renovation and work was completed much to our friends satisfaction, money was paid and so the story should have ended. 

Two things subsequently marred this initial satisfaction. The first and you would think the most significant was that the contractor did not check the plumbing joints adequately leading to a leak a deal of inconvenience and some very wet carpets for our friends. The contractor responded rapidly, rushed round and put right the problem, apologised for the incident and offered to pay to clean the carpets. Not bad customer services if you overlook the incompetence aspect of the leak.

Strangely though it is not this incident that has left a lasting bad impression for our friends, but this. After they had resolved the leak the contractor's parting words were that they would return to replace the small amount of insulation that had to remove from the loft as it was wet', something which several months on has still not been done.  This last point is why our friends will not be recommending that contractor to any of their friends and of course relating this story to anyone they meet.

Counting the cost of lost business

Calculating the cost of lost business is never easy but lets make a conservative estimate that there was £500 profit in the work done. If our friends recommendations led to just 5 future sales that would result in £2,500 future profit. Further if 3 of those recomendees did themselves recommend the business then we get an accumulative word of mouth value of £7,500, it soon adds up. If you factor in the cost of acquiring the lost WOM business through traditonal advertising channels then you start to get a real feel for the cost of letting a customer down.

The story serves to demonstrate a few core tenets of customer relationship management.  A problem resolved satisfactorily to the customers delight can increase customer loyalty. Conversely failing to deliver on a promise, however small, is the biggest of CRM sins and the cost to your business can be immense.