How to handle customer complaints effectively

Dealing with customer complaints can be a business owner's worst nightmare. But with lots of attention and creative thinking, you can turn them into a great opportunity.

Faced with an upset customer, many small business owners simply shut down. Some may avoid the customer's communication or give unhelpful and unsympathetic responses.

Receiving your first customer complaint can be daunting, especially if things escalate quickly. But there are ways to turn things around. If done right, the original complaint may even earn you a great review, renewed loyalty from your cusromer, and even positive attention on your social media channels.

Read on for our top tips on how to deal with customer complaints, or check our guide to building Trustpilot reviews.

Resolving customer complaints

Complaints are a great source of valuable information about your business and your customer base. Customers who bother to interact with you, even if it's to complain, are likely to remain loyal to your business – but only if they feel you're taking their complaint seriously and doing something to fix the problem.

The importance of handling customer complaints

It's important to gain repeat customers if you want to maintain a healthy and profitable business. By most estimates, a single sale to an existing customer will cost only a tenth as much as the process of finding a new customer and getting them to buy.

It may seem counterintuitive, but this is why complaints are a useful way to interact directly with your customers – they allow you to build a conversation and a more personal relationship. It's all part of creating a brand identity.

Complaint + satisfaction = loyalty

According to research, customers who complain (and are happy with the company's response) are almost 10 per cent more likely to make a repeat purchase than a customer who didn't complain in the first place.

Customers who've received an efficient, personal response to their complaint are likely to feel more of an affinity with the company in question. They're also not as fickle as you may imagine – most people recognise that mistakes sometimes happen. And most customers instinctively remain loyal to a company who've given them personal attention.

More surprisingly, it's your most loyal customers who are most likely to complain in the first place. Customers who already feel some loyalty to your brand are more likely to take the time to get in touch, either because they take poor service more personally, or because they wish to remain loyal to the company but need you to guarantee better service first.

Complaints from your repeat customers gives you the opportunity to learn about the most important segment of your customer base. 96 per cent of unsatisfied customers don't complain at all – they simply move to one of your competitors.

The remaining four per cent are a window into the concerns of your customers. This should give you valuable information that you can use to improve your processes and increase customer loyalty.

So, what are the fundamental steps to handle customer complaints effectively?

How to handle customer complaints – step-by-step

1. How to respond to customer complaints

Fist, you need to learn how to deal with complaints effectively.

Speed is very much of the essence when dealing with customer complaints. You need to give a sense of urgency – the customer will want to feel that their complaint is being taken seriously – and quickly.

If you have a direct conversation with the customer, either by phone or face-to-face, you should be prepared for it to be difficult. You might think that you're not at fault – if you're a manufacturer, for example, the bulk of your complaints may actually be a result of customer misuse.

Regardless, you should let the customer explain their problems without interruption. If they're particularly bad-tempered, giving them the opportunity to speak uninterrupted will also help to calm them down.

You should also record the details of the complaint. It's important that you address all of the customer's concerns, so take notes. If relevant, you should also make sure that you keep these notes with a copy of a sales receipt or invoice.

2. Rectifying the problem

Having identified the problem, you need to resolve it satisfactorily, for both you and your customer.

At this stage it's worth remembering the importance of complaints and the value of repeat customers. The complaints process might be the only time you'll have the opportunity to 'buy' customer loyalty, through efficient complaint management – and maybe even compensation.

If you do decide to refund the customer, or make a financial gesture, you'll need to weigh up the cost of this against the benefits of gaining or maintaining a new loyal customer.

After offering financial compensation many businesses consider the complaint over and done with. However, you should always look at whether's there's a follow-up action that will leave the customer feeling positive about your company.

This follow-up could be as simple as a letter, saying how you'll do better next time, or even sending a bunch of flowers – taking the time to do something extra could improve your standing in the eyes of the customer.

3. Learning from your mistakes to prevent future complaints

The lessons you learn from complaints are just as important as holding on to a valued customer. While dealing with a complaint quickly and sympathetically will increase customer loyalty, this loyalty will soon fizzle out if your business continues to make the same mistakes. Think about changing your practices to make sure there's no chance of something similar happening again.

Depending on your business this may be a lengthy process. For example, if you're a manufacturer and a complaint has highlighted a fault in your product, rectifying this fault is likely to take time.

Sometimes, you'll need to carry out a cost-benefit analysis. If the issues raised in the complaint affect only a small number of customers, and a lot of work is needed to fix the problem, you may decide it's not worth making any changes.

However, in all cases it's important to remember that the cost to your business of an unsatisfied customer isn't limited to the lost revenue from one individual. Customers who lodge a complaint but aren't happy with the response will tell others about their experience. So you must be sure of the benefits if you choose to ignore customer complaints.

Complaints management is a fundamental part of your customer service and sales processes. Ignored complaints can cost your business. But a prompt and reasonable response can win you a loyal customer and develop your business's reputation for top-quality customer service.

Insure against mistakes and accidents

Most businesses will benefit from a tailored insurance policy, and you can usually include covers that will protect you against specific risks and mishaps.

If a customer escalates their complaint to a claim for compensation, public liability insurance (for accidents and injuries) and professional indemnity (in case you make a mistake or have to deal with a claim for negligence) are covers to look out for.

Do you have an effective strategy for how to handle customer complaints? Tell us your success story in the comments.

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