The Ritz-Carlton's Famous $2,000 Rule | Customer Lifetime Value | Bell Desk

The Ritz-Carlton’s Famous $2,000 Rule

The Ritz-Carlton's Famous $2,000 Rule | Customer Lifetime Value | Bell Desk

How much would you empower your employees to serve your customers? The Ritz-Carlton has put a number to that very question.

If you’re one of their customers, the good news is that…

The Ritz-Carlton Will Spend $2,000 To Make You Happy

Known as one of the gold standards of customer service, the Ritz Carlton has been rightly studied and dissected over the years in an attempt to find the “secret” Ritz sauce. Entire books have been written just on the Ritz’s customer service.

One aspect of the Ritz’s service that has received a lot of coverage is the fact that the Ritz empowers its employees to spend up to $2,000 to solve customer problems without asking for a manager. Yes, you read that right, Ritz-Carlton employees can spend up to $2,000 per incident, not per year, to rescue a guest experience.

What is interesting about this famous number is that the majority of authors who mention it leave out an equally vital statistic. You see, the $2,000 is always mentioned in the context of how important employee empowerment is to great customer service — as if empowering employees to excess is the key to a profitable and successful business.

What the authors often leave out is this: the average Ritz-Carlton customer will spend $250,000 with the Ritz over their lifetime.

Like any smart, profitable organization, the Ritz did not pull the $2,000 figure out of thin air. The Ritz has studied its customer base and understands the value of the relationship with their customers and what they are willing to do to maintain those relationships.

When you take into account that the customer lifetime value of a Ritz-Carlton customer is a quarter million dollars, the $2,000 does not seem so hard to conceive.

The Ritz-Carlton values relationships over transactions, and for anyone who has ever stayed at one of their properties, that is no secret.

Knowing that your business probably doesn’t have a $2,000 per-incident budget for service recovery, it’s important to focus on how your business can use the same principle to your advantage.

It begins first by embracing the idea of a relational approach over a transactional approach.

When organizations approach their customers relationally, they do not attempt to extract every possible advantage from each transaction. They empower their teams to make things right in the moment, even it it results in an unprofitable interaction at the time.

These organizations know that in the long run they will be rewarded with loyalty and that the customer relationship they will preserve is worth far more than any individual transaction.

Far more.

For more on the $2,000 rule, check out this follow-up video:

To learn more about employee empowerment, make sure to check out our Ultimate Starter Guide to Employee Empowerment.

About 

By Adam Toporek. Adam Toporek is an internationally recognized customer service expert, keynote speaker, and workshop leader. He is the author of Be Your Customer's Hero: Real-World Tips & Techniques for the Service Front Lines (2015), as well as the founder of the popular Customers That Stick® blog and co-host of the Crack the Customer Code podcast.

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14 replies
  1. Bill Dorman
    Bill Dorman says:

    Pretty good idea and certainly big picture thinking; we (LUI) should probably think about something like this as quite a few of our ‘opportunities’ to shine from a service standpoint revolve about some dispute over money. Hmmm…

    We had a chamber retreat at the Ritz in Sarasota one year and they were short-staffed for our group evening dinner. They didn’t handle it very well. And to add insult to injury, even though our meals were pre-paid our drinks were not and we had to pay Ritz prices even on tea and coke. I was not impressed; maybe if I call them and ask for the $2,000 it will make me feel a little bit better, huh?

    Good story, I haven’t had a chance to go through your e-book yet but I do have it now.

    Reply
    • Adam Toporek
      Adam Toporek says:

      Ouch, that does not sound like the legendary Ritz experience. It’s one of the amazing things about Ritz-Carlton is that stories like that are few and far between. Here’s a thought? If each person in your group is worth $250k on average lifetime, how much money did the company make on those drinks? I’m simplifying, of course, but you get the point.

      Glad you got the book! Looking froward to your feedback.

      Thanks Bill!

      Reply
  2. Ralph
    Ralph says:

    Hey Adam,
    Funny, I had the opposite experience as Bill but more on a personal level. My wife and I were at the newly opened Ritz in Toronto and they comped us the fee for bringing our dog into the hotel and since we were celebrating our anniversary also gave us each a glass of champagne at dinner. Small things. We tipped our server handsomely and she got us a table at the bar for a night cap and bought us a round of drinks. You can’t beat that for service and we are an average customer. Not special by any means.

    If you think about it the service charge for the dog really cost them nothing and the remainder came out of the tip we left for dinner. It cost the hotel virtually nothing and left a lasting impression.

    I have a client who has been difficult throughout a project that I recently completed but was fair when we asked to be paid for some changes they required during the construction phase. We also did them some favours during the project and as it turns out they we not happy with part of the design. We offered to fix it at our cost and that changed the game. Small cost for us. Big value for them as they were tapped financially and got the fix they needed.

    In my mind it works well as long as you are a bit strategic about it.

    Reply
    • Adam Toporek
      Adam Toporek says:

      Thanks for the stories Ralph! That’s the interesting part about the $2,000 (which I shared in the eBook but not the shorter blog post) — just because they have $2,000 to spend, doesn’t mean they have to spend it. As you point out, the extras they gave you cost very little but made an impression. There is a story in the book is about the Ritz in Amelia Island, FL and how they created a great experience for a family whose young so had left his stuffed giraffe at the resort. What they did took time, creativity and virtually no money.

      Like with your client, as long as you are smart about it — not “giving away the farm” per se — you can create tremendous goodwill and strengthen long term relationships this way.

      Reply
  3. Tim Bonner
    Tim Bonner says:

    Hey Adam

    Great idea if you have the money to empower your employees in this way. I’m sure there’s some abuse of the Ritz’s goodwill though!

    I like the concept of it though and I have found the most important and rewarding part of my business to be connecting with other people.

    The aim should always be to try and solve a problem and find a solution. I can’t give my readers $2,000 but I’ll try and help them in any way I can!

    I hope you had a great week Adam.

    Tim

    Reply
    • Adam Toporek
      Adam Toporek says:

      Thanks for stopping by Tim and well said!

      That’s one of the things that prompted me to write about the $2k. I read a ton of articles researching it and never saw one that linked the 2k to the lifetime value number. Without that context, the 2k just seems like empowering to excess. The key for all of us is what we can do within the confines of our business model. And often a monetary fix is not needed or appropriate.

      Reply
  4. Leon Noone
    Leon Noone says:

    G’day Adam.
    It’s interesting how sayings become frayed over time.
    I recently discovered that Cesar Ritz, the famous hotelier didn’t say “the customer is always right.” He said,”the customer is never wrong.”

    Each of us has to find our distinct and unique way to convey our customer commitment
    I also think that we need to exercise considerable care in quantifying customer commitment. My experience suggests that customers don’t necessarily”want their money back” when things go “wrong.” I suspect that what they want is what they expected to get in the first place.

    If I order a well-done steak that’s what I want. If I’m served a “medium -rare” steak, $2.000 wont make it taste better.

    Reply
    • Adam Toporek
      Adam Toporek says:

      Great to hear from you Leon! I like to think of the Ritz’s $2,000 Rule as an empowerment limit more than a quantification of the company’s customer commitment. You’re right — money/refunds can’t always make up for a bad experience, but having the budget at the front lines to do what it takes to repair the experience can be very powerful (also, very dangerous if not managed smartly).

      Reply
    • Adam Toporek
      Adam Toporek says:

      There is always an opportunity for unhappy customers. The Ritz is trying to create a culture and process that minimizes unhappiness by allowing employees to resolve issues before they grow into something larger and more challenging.

      Reply
  5. Shep Hyken
    Shep Hyken says:

    Great article Adam! Weather it’s $5.00 (as in the $5 Lifeboat you know about) or $2,000.00 the idea is to recognize the value of a problem/opportunity. Ritz-Carlton is one of my favorite customer service role models – and this concept is just one of the many reasons why.

    Reply
    • Shep Hyken
      Shep Hyken says:

      So, after I hit “Post Comment” I realized… Weather is about rain and sunshine. The correct word is Whether! I’m not that bad of a speller/proof reader! Again, Adam, great article!

      Reply

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