Value Builder Series: Factor 7 – Customer Satisfaction
This attribute measures both the extent to which your customers are satisfied and your ability to assess customer satisfaction in a consistent and rigorous way, which is very important to acquirers.
Watch this quick video about why measuring your Customer Satisfaction is an indicator of the worth of your company.
Most business owners know intuitively how satisfied their customers are, but as their companies grow, some owners lose touch with their customers. Being able to objectively measure the satisfaction level of your customers is essential to maintaining their loyalty.
How often, if at all, do your existing customers refer your company to their friends and colleagues:
While many business owners use some sort of customer satisfaction survey, according to Fred Reichheld, author of The Ultimate Question, most of these surveys do a poor job of predicting the likelihood of a customer either repurchasing from you or referring your company to a friend.
Determined to find a better way to quantify how well a company is serving its customers, Reichheld and his colleagues at Bain and Satmetrix, developed the Net Promoter Score 1 methodology, which is based around asking customers a single question that is predictive of both repurchase and referral: «On a scale of 0 to 10, how likely are you to refer our company to a friend or colleague?»
Reichheld discovered that when customers answered this question with a 9 or 10, they were statistically more likely to repurchase from the company, refer it to others or do both – so much so that the companies that scored well on this measure were more likely to grow than were lower-scoring companies.
Not surprisingly, the news that a researcher had actually discovered a way to predict growth triggered Fortune 500 companies around the globe to latch on to the methodology. Today, companies such as American Express and ING use the Net Promoter Score as a way to quantify their customer experience. More important, many acquirers – both strategic and financial – use the Net Promoter Score methodology as a way to evaluate their business units and potential acquisitions.
1 Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
How does your company measure up?
To see how your company measures up, survey a group of your customers by asking Reichheld´s question: ‘On a scale of 0 to 10, how likely are you to refer our company to a friend or colleague’? Those who reward you with a 9 or a 10 are your ‘Promoters’ in Reichheld´s lingo. Your ‘Passives’ are the customers who give you a 7 or 8 – they are satisfied but not likely to repurchase from you or refer your company anytime soon. Your Detractors are the angry customers who score you between 0 and 6. To calculate your Net Promoter Score, take the percentage of your customers who are ‘Promoters’ and subtract the percentage of Detractors. For example, if 45 percent of your customers are Promoters, 20 percent are Passives and 35 percent are Detractors, then your Net Promoter Score would be 10 percent (45-35=10).
Reichheld found the average Net Promoter Score among the companies he surveyed was 10 to 15 percent, so by definition, if your score is above 15 percent, you´re above average, and you can expect your company to grow at a rate faster than the economy. A small handful of companies have achieved a Net Promoter Score of at least 50 percent, which Reichheld defines as ‘World Class’. Satmetrix, a company that specializes in helping companies integrate the Net Promoter Score methodology, has surveyed a number of companies and found the leading brands to be the following:
As popular as the Net Promoter Score methodology is among the Fortune 500, it is even better suited for use among smaller companies for a number of reasons:
- It´s easy. You can deploy the questionnaire in five minutes using a survey tool like Survey Monkey and enjoy a very high response rate because answering it is not a burden on respondents.
- It gives you a common language with investors. If you´re planning to sell all or part of your company in the future, tracking your customer satisfaction using a well established, recognised tool allows potential acquirers and investors to quickly gauge how satisfied your customers are relative to those of other companies they have invested in.
- It´s cheap. The survey can be deployed and the data analysed easily in-house.
- It´s predictive.
Unlike most surveys, which ask respondents a litany of timeconsuming questions that render interesting but often irrelevant data, the Net Promoter Score methodology asks the only question that has been proven to predict the likelihood a customer will repurchase or refer you – the two things that fuel growth of any business.
Consider the following questions with your Business Doctor:
- Do you have an objective way of regularly measuring the satisfaction of your customers?
- Is the methodology you use to measure customer satisfaction recognisable and reputable? In other words, will it show to a potential acquirer that customers value your products or services?
- Would shortening your customer satisfaction survey improve the response rate you get?
- How satisfied are your customers compared to those of companies like Amazon, Costco and USAA?
What is the next step?
There are 8 factors that drive that value of a business. Complete the Value Builder Survey now to find out your overall score then attend our Business Builder Workshop to find out how you can improve the value of your business.
Set aside 15 minutes to complete the Value Builder Survey.
Why you should do the Value Builder Survey:
Watch this quick video to find out why your Value Builder Score matters.
Creditsand notes: The information in this article is by John Warrillow. The Value Builder Score has recently been renamed from Sellability Score to Value Builder Score.
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