7 hidden costs that are bigger than people ever imagined
We recently met up with a CEO scaling up his third solar business. Our friend was interested in how Bodhi could help his company increase referrals, but something he said early on struck us. He said, "When I ask my team, 'What do you need?' They always tell me, 'more people.'"
"Why is that?" we asked. Here are a few of the complaints he rattled off:
After a discussion, we suggested that poor communication was the root cause of the headcount requested by his team. Our friend initially disagreed with us, stating that his CRM has built-in automation to email customers at milestones, and they have processes in place to ensure tasks are automatically assigned. When we dove in, however, he recognized the fact that if a customer can't confirm receiving a communication, it didn't happen.
This interaction had us thinking about the costs of poor communication. Not just the obvious costs that we can quickly list – lower close rates, negative reviews, fewer referrals, more change orders – but also the hidden costs of poor communication. These are the costs to a business that manifest as an indirect result of poor communication practices.
In this post, we walk you through the hidden costs of poor communication and the impact they can have on your solar business. Each of these costs can be evaluated and calculated; we conducted an exercise to attach values to these costs. It highlights the unfortunate reality that poor communication is a bigger problem than most people ever imagined.
Let's first look at the more obvious costs of poor communication that most people are generally aware of. And when we say "obvious," we by no means suggest that they are easy to address. In fact, they are pervasive across the industry.
Unanswered leads. Leads now come from all different sources, from forms on your website, social media, lead generation companies, events, referrals, and other random encounters. Then combine that with the busy lives of your prospects that require multiple outreach attempts to finally connect. When a solar company is small, having one deal fall through the cracks might not be a big deal.
However, these inefficiencies scale exponentially as your company scales. What was originally one lost lead could now be one lost lead every week or even more as you've grown. That could add up to more than $1 million lost in pipeline value over a year and will continue to grow as you grow.
Negative reviews. The Review Control Center points out that one negative review wreaks havoc on a business. According to their study, a bad review scares off about 10% of customers, potentially costing a company upwards of $15,000 for every single negative review. This is in sync with an older yet prominent 2016 Harvard Business School study that found that a one-star decrease on review sites leads to a 9% reduction in businesses' revenue.
Other forecasts are even more troubling. According to another study, one single negative review is projected to drive away as many as 22% of prospective customers. For a solar company installing about 25 projects a month, the total losses can reach into the millions because of the snowball effect of a single bad review.
Lost referrals. Close rates for solar referrals tend to be about 50% or 10x that of cold leads. Therefore, the weighted opportunity cost of one unrealized referral is about $15,000 in revenue. Based on industry standards, this means that if you lose a referral, you’re likely to pay up to $500 to lead gen companies to replace the customer.
And for companies that rely on referrals, a loss of a single referral opportunity represents all the potential referrals from the network that the customer represents. The opportunity cost may be exponentially expensive for any solar company.
Lost time. When not everyone in the company is on the same page as the customer, it just leads to lost time. For example, remember the last time your team showed up at the customer's house at the wrong time because the text exchange of the customer's schedule wasn't logged in the CRM? Between the man hours lost and the potential hit to that customer’s experience, a minor mistake in a CRM can end up costing your company at least $1000.
Pinpointing the hidden costs of poor communication is different for every solar provider, but a few consistent themes tend to come to the surface:
When an existing customer feels their assigned project contact is not responsive, who do they call next? The sales rep. Because sales reps are invested in their customers, they feel an obligation to address their issues. Sales reps have told us they spend 15% of their time keeping existing customers updated, which is 15% of their time that's not being used to close deals. That adds up to about $150,000 in lost sales per sales rep.
Poor communication leads to customer frustration which leads to stressful phone calls for your staff. Nobody likes those phone calls. That's why there is such high turnover in customer support roles. One current Bodhi customer told us, "The weight of jobs pre-Bodhi has crushed people's professional careers."
The average cost of replacing an individual employee is as much as two times the employee's annual salary. If your project managers or customer support roles are making $60,000, that's over $100,000 each time a person leaves. Backfilling the role incurs the cost of time for the existing team. Plus, how long will it take to hire someone new in this tight hiring environment and for them to ramp up to the skills needed to do the job?
When a customer is unhappy, it's not the review sites they turn to first — though they’re likely to leave a bad review there too. However, usually their first stop is social media. We recently saw a LinkedIn post from an unhappy solar customer that showcases this dilemma in technicolor.
The customer not only tagged the company but personally tagged three people at the company, including the CMO. And because it's social media, other unhappy customers saw it and piled on in the comments. We're sure that CMO wasn't happy to be trending on LinkedIn that day.
Some upset customers will eventually reach out directly to the CEO. This takes time out of the day not only of the CEO, but also everyone else associated with the account. The way we’ve seen this play out with other solar companies is that the CEO gets briefed by the director and the sales rep, then contacts the customer to empathically communicate that the company truly cares about their experience.
What could have been averted with the right communication then draws in other team members to make sure it doesn't happen again. By the time the situation is resolved, everyone has invested hours in righting the ship. A process like this quickly ends up being thousands of dollars of staff time. And furthermore, no one likes to be micromanaged.
Your customer's loss of trust and confidence results in increased scrutiny during future communications. This experience is then foisted onto other members of the team that may interact with the customer in other settings.
Imagine that a project manager has lost the customer's trust. A quality control inspector, upon arriving at a site, inherits the attitude the customer has towards the PM and must carefully navigate this sensitive dynamic. What should have been a short 15-minute visit now becomes an hours-long fiasco.
If your company doesn't have great reviews or isn't generating many referrals, what leverage do you have to win deals? Unfortunately, the only lever left to pull is lowering your sales price. And for commissioned-based sales reps, that means less money. Taking that expected 9% loss in revenue from negative reviews, that translates to a loss of $5,000 to $10,000 in take-home pay for sales reps. Unsurprisingly, this can lead to higher turnover rates, which again hits the bottom line of the company.
Happy customers will refer friends for free because they want to share their great experiences. Everyone already knows that, of course, but the numbers tend to be eye-popping. Some estimates show that one happy customer can generate up to nine referrals, providing a stream of business from one positive experience.
Now imagine the other side of that coin. In the words of a marketing director of a national solar company, "The customers that don't love you, you have to bribe them for referrals." Instead of the positive impact on margins solar companies see from a thriving referral campaign, companies with unproductive referral programs have to pour money into generating those referrals. All things considered, it's no wonder customer acquisition costs are so high.
With these dilemmas in mind, what is the potential cost of a single missed communication? It’s certainly more than the time it takes to compose the message, and it could measure in the tens of thousands of dollars. Imagine the following scenario as a snapshot of what could go wrong:
A new customer begins to feel out of the loop. After signing a contract for a new solar PV system, a homeowner is feeling pretty good about the purchase – until they enter an unexpected gray area because of a communication lapse.
Instead of receiving a simple follow-up communication (or logging onto an easy-to-use customer portal themselves), the customer is left in the dark after signing the contract. Without a clear timetable ahead of them, the customer suddenly begins to have doubts about the process and doesn't like the lack of communication.
So, the customer reaches out to the project manager. In an attempt to get back in the loop, the customer looks to get information straight from the PM. But, as any solar installer already knows, PMs tend to be extremely busy and don't always have time to immediately return calls and emails from established customers. While waiting for a return message from the PM, negative sentiment begins to build and a nearly happy customer suddenly isn't so optimistic about their new PV system.
Now they contact the sales rep. When a customer has to reach out to a second company rep for answers, it is a sign that things are not going particularly well. Sales reps also don't tend to have much (or any) time to deal with customers already under contract; they're laser-focused on following up on fresh leads and generating new business.
But a good sales rep also wants to ensure happiness and typically will take the time to address homeowner concerns. Unfortunately, a sales rep is not only taking time away from generating new business, but they're also inheriting a customer who is already on edge.
The sales rep looks to get in touch with the project manager. It can all really start to go sideways if a sales rep has to play phone tag with the PM to get answers. While sales reps know that PMs are very busy, they're also trying to overcome a shift in customer sentiment and earnestly attempt to resolve the issue. Unfortunately, a project manager may still take some time to return a message because they simply have so much on their plate already.
When the PM does get back to either the customer or the sales rep, everyone involved has wasted time providing information that could have been effortlessly conveyed by the right supporting software.
The sales rep has now spent too much time handling old business and the project manager has put their daily schedule behind. The customer may not even be pleased with the results, especially if answers took a while to generate.
The customer drops a bad review on the way out the door. In addition to a metric ton of wasted staff time, an out-of-the-loop customer is much more likely to leave a bad review. Any systemic issues of the company – or even ones perceived by the homeowner – are now floating around social media scaring off prospective customers. Worse still, they could even generate a fresh opportunity for a competitor.
A meeting is called to address the issue. With an internal failure now evident, the owner looks for answers by meeting with the heads of the company’s departments. While a necessity, the meeting also takes up even more time, placing additional pressure on employees.
A project manager quits. When these types of issues continue to happen, a company is at risk of a problematic uptick in turnover. If a project manager has to consistently spend a portion of their time calling back customers under contract, they will inevitably be tempted by companies that have resolved these issues through automation. From one lapse in communication, a company has now opened itself up to bad reviews, lower efficiency, overworked employees, fewer referrals, and higher turnover.
Customers these days expect answers to constantly be at their fingertips. If that's not the case, you can rest assured that they will be reaching out to company representatives for answers. With a purchase as big as a solar PV system, homeowners are also likely to have even higher expectations than in other industries.
But this is both a challenge and an opportunity. Customers who feel constantly informed of the process are much more likely to remain satisfied, which can lead to positive reviews, strong referrals, and less wasted time from employees.
If you’re ready to talk more about best practices for your solar company, contact Bodhi today to see how you can improve your customer communication strategy and stay ahead of the competition while saving your solar business both time and money.