A Cog or COGS

Quick Summary: Customer Service is the most significant element in the overall process of satisfying customers.


It is easy for a company to fall into the trap of minimizing the costs of customer service without realizing the critical role that customer service plays in the overall sales process.  Sales reps can only provide an opportunity for a company to meet a customer’s needs.  In many cases, customer service personnel are the first exposure that a customer has if they encounter a real or perceived issues with the company’s products or services.  Companies need to ensure that customer service teams are funded and supported appropriately for the overall wellbeing of the entire organization.

A cog commonly refers to a tooth on a wheel or gear.  When evenly spaced, the cogs in a wheel can engage other cogged wheels to transfer motion smoothly.  Using this as an analogy, customer service can be thought of one of the cogged wheels in the system that creates long-lasting customer relationships. Sales, marketing, development, manufacturing, as well as other functions within the organization are also cogged wheels that, when meshed and working closely together, can provide smooth and continuous customer satisfaction.  If one of those cogged wheels or even individual cogs in any one wheel are missing or not in line with the others, the smooth motion is easily disrupted with perturbations felt both forward and backward.

COGS, on the other hand, is a common abbreviation for the financial term “Cost of Goods Sold”. It is usually defined as direct cost of materials and labor associated with producing a product.  A company’s Gross Margin is calculated as Revenue minus COGS.  Although simple in concept and definition, there are many variations and interpretations used by organizations that add a level of complexity that can have significant impacts on their business and, equally important, on their customers.  Obviously, the higher the gross margin the better. So, companies spend a considerable amount of time and effort to minimize any costs that are included in the COGS calculation.  It is not uncommon to include warranty and customer service costs in COGS.  And, there-in lies the problem!  Even if the Finance Department’s financial statements do not include customer service costs in the COGS and, therefore, Gross Margin, management may subconsciously try to minimize their costs just as they do other items.  The result is viewing customer service as a “necessary evil” that should be minimized instead of an important cog in the overall process of continuously delighting all customers as stated as Principle Four of this collection.

Even if customer service costs are included as a sales or marketing expense, the mindset of holding their costs to a minimum can still be part of management’s mindset.  The logic is simple: “We would rather hirer another sales rep than a customer service rep or two.”  The faulty logic is that sales reps can directly lead to increase revenue.  In fact, a sales rep can only present a customer to the company’s front door and then open it.  It is up to the entire organization to fulfill the order and meet the promises and the expectations set by the sales organization.  Everyone has experienced a breakdown or unmet expectations when dealing with a supplier.  Occasionally, a sales rep can remedy the situation.  However, most of the time, the situation involves the involvement of others; most often someone in the Customer Service organization.  Quite simply, a sales rep, the web site, or collateral material only conveys what a product will do while a customer service rep must deal with what a product actually does.

The article in this collection “A Simple Definition of a Defect” defines a defect as any deviation from a customer’s expectation.  The key term in the definition is “expectation”.  It involves the subjective feeling that a customer has about what a product or service that they purchased “should” provide.  With this frontline responsibility in working with (not merely “dealing with”) customers, Customer Service organizations need to have adequate tools and authority to resolve customer issues, as defined by the customer, as quickly and effectively as possible.  If their “cog” in the overall wheel of continuous customer satisfaction is not adequate, the entire smooth flowing operation will certainly slip. 

The acknowledgment that customer service is a cog and not merely a part of COGS needs to start at the very top of the organization and filter down.  Unreasonably reducing the customer service portion of COGS will turn out to be a false savings.

Article Number : 6.010202   

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