Why Stellar Service Alone Doesn't Produce Amazing Profits

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Delivering extraordinary service doesn’t guarantee that your company will make lots of money, or any money at all. While it’s true that “wow” service is essential to building a brand, generating referrals, and growing a business, it’s a myth that the money will follow.

If you’re consistently providing stellar service but your cash flow is stagnating, here’s what might be wrong and what you can do to produce higher profits.

Pricing

Your pricing is too low to generate a reasonable profit. High levels of service and personalized attention for each customer require significant resources. Hiring, training, and keeping employees who interact effectively with customers, anticipate and address concerns, dispense product knowledge, dream up innovative solutions to one-of-a-kind problems, etc. can cost much more than averagely-qualified staff.

Simply raising prices to reflect service quality may be a quick fix to the profit problem. But superior service, by itself, may not command higher prices than the industry norm. To reach profit targets, positioning (or repositioning) your company as a premium provider, along with customer education, should accompany stand-out service.

Client Base

The ideal client loves your great service, willingly pays whatever price you ask, and needs consistent, reasonable amounts of interaction. Servicing these clients with a predictable level of service is easy to plan and execute. But, at least a few clients will require excessive amounts of hand-holding and put a strain on your resources.

Find ways to reach the not-too-needy-but-needy-enough clients who value your service and respect your boundaries. Or, adjust your pricing structure to compensate for extra time required to ensure client satisfaction.

Volume

Your service is affordable by an elite few and, as a result, your sales are low. Your current volume doesn’t sustain the infrastructure and staffing costs that are in place to support outstanding service.

Remedies vary. If your business is relatively new, volume may grow as more people become aware of your company and its incredibly wonderful service. If your business has been around for a few years or more, greater effort is needed to drive sales. Promote service awesomeness so that greater numbers of people (not just the elite) are willing to pay higher-than-standard prices. Or, trim infrastructure expenses in a way that doesn’t compromise service quality and still supports capacity.

Second-Chance Stellar Service

Making amends for service failures (for those times when your service delivery isn’t flawless) impresses customers and, ironically, can generate positive word-of-mouth referrals. But taking corrective actions (refunding shipping charges due to an order fulfillment error, for example) can be much more expensive than consistently delivering great service the first time.

Prevent problems so you don’t have to compensate your customers. On a monthly basis, or more frequently if time allows, categorize and evaluate service failures. Then, pinpoint causes of problems through discussions with key employees that represent all functional areas, not just customer service. In some situations, you’ll find that an employee or vendor didn’t follow instructions: for example, quality checks weren’t performed according to guidelines. But in many cases, processes aren’t in place to deliver service required by customers: for example, your company was unaware of a new account’s specifications and hadn’t yet developed procedures to assure compliance. Address simple errors as well as deeper issues as quickly as possible to avoid recurrences.

Cost Controls

As a business owner who values excellent service, you’re willing to pay above average prices to make sure that your company receives great service from its vendors. Or, you are so focused on superior quality that you haven’t paid as much attention to developing, refining, and managing your vendor base and getting competitive prices.

Check to make sure that you aren’t paying too much of a premium for outstanding service. Compare product specifications, quality, and costs as well as service levels among multiple vendors. Negotiate more favorable agreements with current vendors based on your research. Or, conduct a test purchase with a new vendor and switch if you find similar or better results at a lower price point.

Wrong Definition

Your company is delivering incredible service but no one seems impressed. Contrast your definition of service with that of your prospects and existing customers. Are you offering quick turnaround on narrow offerings while your target market wants deep inventory selection and can accept slower service? Are you available 24/7 but customers rarely need assistance outside of normal business hours? Do you provide multiple reports to customers but they only use one? Then, you may be providing the wrong kinds of service.

Redefine what stellar service means to your customers. Consider what customers have told you about their needs, directly in conversations and indirectly through purchasing decisions. Call and ask your best customers what they value, or conduct a survey. Discern how your company can reinvent or tweak its service aligned precisely with customer preferences.