Private Companies Can Recoup Customer Service Costs, Government Cannot

One of the main differences between the private and public sectors, when it comes to customer service has to do with the degree to which the organization can benefit financially from offering better customer service. One can make the argument (and many do), that a company that offers better customer service will fare better than companies that are perceived as delivering poorer customer service, and people who make that argument suggest that customer service improves profitability, via creating more loyal customers, better customer retention, and even by creating “raving fans” that will market the company via social media.

While that’s not as true as one might think, it highlights a fundamental difference between government and the private sector. For profit businesses and “invest” in customer service in the hope that it will generate increased sales, and lower marketing costs — generating some return on that investment (ROI).

Government, however, except for certain revenue generating situations, like parks and tourism, cannot recoup costs associated with improving customer service, so customer service is a cost center.

Factoring In The Taxpayer Into Customer Service

The second aspect of this has to do with where money comes from to fund better customer service. In the private sector, marketing budgets and the potential for more revenue apply. The idea is, of course, that better customer service is “free” (it’s not), because the costs can be recouped. Also in private sector, money comes from voluntary sources — people choosing to shop at one place or another.

In the government sector, money to improve customer service comes from mandatory taxation, and that makes it a different ball game. Citizens have little choice but to pay taxes, and cannot choose to “go elsewhere”.

Citizens don’t want to pay higher taxes, and it’s doubtful if asked directly to pay, let’s say $100 more per year in higher taxes in exchange for better service from government, taxpayers would say “Go ahead”.

Conclusion – Private vs. Public Sector Customer Service

None of this precludes improving government service, but it deserves some thought the next time you come across someone who says government needs to emulate what private companies are doing. Certainly, some improvements (for example, demeanor and attitude of frontline staff) don’t necessarily require additional taxpayer money, but other efforts, including use of technology and social media, will often come with costs.


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