Connect with us


The Net Present Value of a Lost Customer?


The Net Present Value of a Lost Customer?

During my days in business building, I spent considerable energy in understanding the full cost of acquiring a customer, and then the net annual profit opportunity resulting in doing good business with that customer. In my case, the profit breakeven point was around eighteen months in an active customer relationship. In other words, the net profit of an individual customer relationship did not turn positive until the second half of the second year of doing business with that customer.

The corollary to this lesson, of course, is that resolving customer dissatisfaction, even if it involves some expense, is often more profitable than the cost of the full cycle of replacing a lost customer.

This lesson was brought back to mind this week, when I had the frustrating task of trying to find a critical part for an older (but not that old) laser printer for my home office. You have probably had a similar experience. Here’s how it went:

My printer displayed a message telling me that the ‘waste toner tank’ had to be replaced. I was in a hurry to fix the issue before going on a business trip, so I went to my local office supplies retailer—the same place where I purchase about $500 worth of toner cartridges about three times a year. The bad news was that because my printer was a few years old, they no longer carried the particular item that I needed. They suggested I try going to the store’s online facility that should carry the item. The online search yielded nothing. I then went to three other online sites without success and eventually contacted the manufacturer.

The manufacturer service number linked me, via a VOIP connection, to a contracted-out service rep. The VOIP connection was so bad that I had to repeat every word by spelling out my information—name ‘B’ for ‘Bob,’ ‘A’ for Apple, and so on. Finally the very nice person suggested a website for the company’s parts department; which also no longer carried the item.

By now, I had resolved that I needed to just buy a new printer. The issue though, was that because I am a risk-averse person, I always have a supply of all of the colour toner cartridges that my existing printer uses—about $500 worth.

I went back to my local office supplies store. I enquired of the person that I spoke to there as to whether, if I purchased a new printer, they would take back my unused toner cartridges for some form of credit toward the new piece of equipment. The answer I received was, “No – it’s past 30 days since you bought it.”

Frustrated, astonished, but desperate, I bought a new printer—a different make from my old one—and left the store.

I shall never buy another product, or supplies, from that store—and remember that I had been spending at least $1,500 a year there—and I will never purchase another product of the manufacturer of my old printer.

There is an old proverb that goes something like, “let everyone leave the marketplace with a little silver in their pocket.” The fact is that I would probably have been satisfied if the store person I had spoken to had offered me $10-20 off the purchase of a new printer for each of the unused toner cartridges I had for my old one. But he didn’t. His attention was totally focussed on his own, short-term agenda, rather than contemplating the customer loyalty that I had shown that store—which a quick search of his database would have confirmed.

Sadly, over and above the rigours of SKU management, no one has taught this person the NPV of customer retention.

Continue Reading