Surely it does? But how much, and in what ways?
To provide better service may cost you a bit more (more staff, better quality equipment, better systems) although all of these things may save you money as well – fewer mistakes, less wasted time, fewer complaints.
I think better service pays off in three main ways
a) More repeat sales, which are the easiest and best kind
b) More word of mouth recommendations and a better reputation – increasingly important in this world of Tripadviser etc. This leads to more turnover and therefore more profit.
c) Able to put your price up. A small and inexpensive change in service could allow you to increase your price by 10% which could double your profit margin, doubling your overall profit, and that’s much easier than selling and delivering twice as much!
So here’s a calculator into which I have put these equations – have a play!
More details about the thinking behind this calculator:
- If your repeats are low you have loads of potential for increasing them, with the resulting easy profit. Repeat work without any extra marketing. If your repeats are already high then changes in service won’t get you so much of a benefit because they’ll mostly already be coming back to you anyway.
More word of mouth recommendations
- If your service is low then an increase in service won’t make much difference. But if your service is already good then you are edging towards delighting our customers enough for them to recommend you to others, and so an increase in service could lead to quite a large increase in reputation / recommendations.
- If you have a combination of lots of repeat business and yet poor service, it probably means you are charging a low price. Why else would you be getting those repeats? So if you had better service you could put your price up, which would be great for your profit. Especially if your margin is currently quite small. Remember that if you are making a 10% profit margin, then a 10% increase in price gives you TWICE as much profit. And a decent improvement in service could easily allow you to charge just 10% more. For example, could a restaurant with silver forks or crisp tablecloths or friendly waiters or candlelight charge £22 instead of £20 for a curry? For sure!
- But if you already have great service and are still not getting many repeats that implies that you are already maxing out your price – which might be a good strategy of course, but still, price increases aren’t the way to get more profit. However, don’t lower your price because you may get a few more repeats but you’ll lose margin and so overall you’ll probably make less money; promotion of your business would be better, that could result in more repeats, e.g. “money off your next visit” – so more repeats is definitely worth pursuing.