Should I cut some customer support costs?

We are short of cash and my accountant is suggesting I cut some customer support costs. I’m not so sure. Help!

Whatever size business you have there will always be pressure on resources and tricky decisions to be made. Should we spend this dollar here or there? Should I spend my hour doing this or that? Of course when a business is growing the pressure is even greater; growth sucks cash so a dollar saved in the back office is an extra dollar that can be spent on much needed inventory.

Under pressure it is easiest and most satisfying to cut costs you can measure. One less person in customer support is an immediate saving and everyone can see the positive impact on the bottom line. But what of the longer impact of that cost saving? Okay, so it’s taking slightly longer to respond to customer queries, but do customers mind? Now that’s a much tougher metric to measure.

An online business – code name Ecru – was short of cash. Needing to make a bulk purchase of product and struggling to raise finance they decided to chop some internal costs. The number crunchers reviewed the p&l and saw that the customer support department was quite costly to run. Investigating further they noticed that because the company was small and conscientious when fulfilling customer orders, customers rarely had cause to contact them.

Scrapping the customer support phone number and replacing it with email-only seemed logical.

The new product was a great success but the increase in sales volume caused headaches behind the scenes. A few customer orders went awry and Ecru started receiving customer complaint emails. Overwhelmed with new orders to ship and old orders to sort out, the company fell behind answering emails. Rather than hire more customer service staff they decided to reframe the expectation of an immediate reply and posted a note on it’s website stating: “The usual response time is 24 to 72 hours”.

But the problems kept on coming and it was now taking way longer than three days to reply to emails. Again they decided against hiring more staff and the lone customer service guy thought – erroneously – that they could placate customers with the following email auto-responder: “Due to substantial increase in the demand we are currently experiencing a very high volume of enquiries. As a result it might take longer than usual to reply to your email”. Unsurprisingly customers weren’t comforted by the suggestion that the company was too busy servicing new customers to look after the unfulfilled ones.

For a time Ecru management just didn’t realise how serious the customer questions and complaints were, rather they were simply delighted with the volume of business being done. But then the trickle of notifications from credit card companies – that customers were seeking to have their payments to Ecru reversed – turned into a flood. The finance department told the boss who enterprisingly Googled “Ecru complaints”. He was stunned to find pages and pages of customers venting their frustrations on websites such as “complaints board” and “ripoffreport” each one saying “Don’t buy from this site”.

On reflection the boss realised that not a single member of the Ecru management team had ever looked at a customer complaint email. And when he spoke to the solo customer service rep he confessed to having become immune to customers’ tirades and simply replied with standard ‘not-our-fault’ emails.

This was over a year ago and Ecru is still down the hole it dug itself.

Plenty of things went wrong at Ecru and there are lots of places to point the finger. But it all started with a false economy. Keeping the behind-the-scenes costs low may seem like a good idea but a number cruncher’s solution is not necessarily a good business one.

Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses:Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of “How to Bake a Business” and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University)