What does a lost account cost?

Too many complaints, slow or non-payment, excessive service demands, and other factors can push any company to "fire" a customer. And this is usually a good thing. But you want to make it a conscious decision.

Because losing a client unintentionally has severe repercussions. Let's see what needs to be calculated to estimate the cost of a lost account:

Lost Lifetime Value: The profit on what the customer would have bought if they stayed with you. Don't forget to add future lost up-sell and cross-sell revenue, which probably represents a 30-40% increase over the customer's current revenue contribution.

Lost Acquisition Cost: This is what you spent to acquire the customer in the first place.   It is your marketing and sales "prospecting" expenses for a specific period divided by the number of customers added during that period.

Replacement Cost: Now take the acquisition cost and add it in again. Because you need to replace the lost customer.

Referrals: Next think about referrals you'll lose. A good sales force will obtain at least 2-3 referrals a year from each account. Add the cost of acquiring these (superior quality) prospects from another source. Then increase this number significantly, because each of these referrals, if they had become customers, would have produced second and third generation referrals.

Negative Advertising: Remember, a lost account isn't going to be saying good things about you. They're going to spread the news of any bad experiences they've had with your company. This will make it harder to convert prospects into customers, increasing your sales and marketing expense (particularly if the complaints "go viral" via social media).

I'm not quoting specific costs as they will differ significantly from one business to the next. But trust me, they are substantial. For that reason they need to be understood from the boardroom down to the sales force; and from accounting to the service department.

One of the better services you can do your company is to quantify these figures, and communicate them to every employee of your company.