Intangible costs
often defy measurement. By their very nature, they are hard to quantify. However, that does not mean you can't evaluate the impact of intangible costs. The process may be more of an art than a science, but you can establish some criteria for evaluating intangible costs to help you make informed business decisions.
Indirect Measures of Morale
Employee morale counts as an intangible cost. Poor morale can hurt the bottom line for a business. If someone asked you to measure the exact cost of morale, you might be hard-pressed to come up with a figure. However, you can calculate a drop in production after an event that lowers employee morale, such as a reduction in benefits. By measuring the drop in production, you can see how much the drop in morale costs you.
Measuring the Intangible Cost of Defective Products
When a customer returns a defective product, you can replace it. With some simple calculations, you can determine the tangible cost of replacing the product. If the customer spreads the word that you sell defective products, you will incur an intangible cost in lost customers. You can't determine exactly how many customers you lose, but you can use a rule of thumb. According to the Wharton School of the University of Pennsylvania, for every 100 dissatisfied customers, you lose between 32 and 36 present and potential customers.
Intangible Cost of Trust
Your reputation has a value. If customers lose confidence that you price products fairly and make an effort to be honest, you can lose business. This can be hard to measure, but you risk the loss of a substantial amount of business if your reputation suffers.
Striking a Balance
You can't achieve 100 percent trust, positive morale and product quality. Spending your time and effort trying to achieve perfection can use up your resources. You can become more aware of the value of intangible costs, however, and train your staff to avoid larger mistakes, while training management to improve morale. If you put 20 to 25 percent more time and money into reducing intangible costs, you could reap rewards in increased sales, productivity and customer satisfaction.
