Why Customer Service is Critical to the Balance Sheet

The value of a business is directly  determined by the number of customers and the value per customer. Your KPI for revenue per customer determines the quality of the balance sheet. Customer service is a critical part of the balance sheet, however not knowing this can cost a company value and shareholder investment returns. When people are working for a company that “seems” to be doing okay there is a common assumption that the “ship will continue to sail as before”, when in essence there is a gradual value loss that will be occurring.

Agreeing on Balance Sheet Understanding

A typical definition of a company's balance sheet is that it is a financial statement that provides a snapshot (picture in time) of its financial position at a specific point in time. It presents the company's:

• Assets: What the company owns or is due to receive
• Liabilities: What the company owes or is responsible for
• Equity: The company's net worth, representing ownership interest

Balance Sheet Equation:

Assets = Liabilities + Equity

In summary it is the value of the company to the shareholders and stakeholders.

How Customer Touch Points create Customer Experience Capital

Your customer touch points are essentially where your customer interfaces with you. This means any place that they are going to interact with your brand as you communicate or you present your product. It could be social media, messaging platforms, chat bots’ platforms, in office, in reception, in waiting rooms, virtual or any other place. These touch points form an impression of who you are and the relationship that the customer will and can have with your brand.

The customer experience capital is formed when a customer who has experienced your brand is willing to continue interacting with it from a financial perspective.        

Here is an example:

There is a food takeaway we buy from in Zimbabwe, and they sell Hotdogs and Chips. Now that package is USD 2, if one buys from them 5 days a week for the whole working days, let us say they are 250 days working days in the year. If one spends that USD 2 per day, that takeaway makes USD 500.

However, if the Customer experience is bad, one can go buy somewhere else. Now imagine that there are 50 people who are happy with the product, and they also are spending USD 2 a day, that means you now have a revenue inflow of USD 500*50=USD25,000.

That revenue carries with it a contribution to the value addition of the business. If the value addition is above the breakeven point of the fixed cost then the takeaway now has a return on investment which it can use to not only expand but to create more touch points which can add value to the business.

Reputation is an Asset

Most people don’t understand why reputation is an asset so let’s dig into it. Marketing is an expensive and specific activity which takes away from the operating capital of any business and is supposed to add to it. That means the difference between your current assets and current liabilities is important and marketing can be a big contribution to the difference in net current assets.

Example:

Reputation is essentially public opinion. A referral is more valuable that any marketing campaign that a business can do. If a person likes a place and they suggest having lunch at the takeaway with a friend who agrees they are essentially locking in another value contribution addition to the business.

It is cheaper to get referrals than to market.        

The more referrals and reputation you have, the more people will talk about your business. Eventually if you had a target of 1,000 clients on your budget and the referrals alone bring you half of that, that means your marketing company can be more scaled and becomes a lesser percentage of current operating costs due to increased revenue (another KPI realised on the Balance Sheet).

How a bad Customer Service is a Balance Sheet Liability

When the service is bad and the touch points are doing such a disservice to the business, the result is that our equation Assets = Liabilities + Equity suffers.

Bad experience means the following

·         Customers buy less

·         Marketing budget goes up

·         Less referrals

·         Loyalty is no longer based on service but just availability (once they get an opportunity to go to a competitor they will)

·         Cash flow decreases but the liabilities increase, in the end you cannot pay bills or do what is needed

·         Less product availability becomes the norm

·         Shareholders lack value addition

·         Business closes

Summary

Identify all your touch points as a business and work on them, make sure there is a person who is responsible for ensuing that service is correct.

Correct: Value Addition to the Balance Sheet

Touch points such as websites, WhatsApp service, Facebook messaging are just as important as the reception that is branded “out of this world”.