The importance of customer satisfaction for business valuation

customer satisfaction and business value

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This post was originally posted on 10th of October 2019

Whilst revenue and profit are of course related to the value of your business, don’t underestimate customer satisfaction. Business value isn’t just monetary. Without meeting customer expectations, it’s unlikely you’d have any form of revenue.

Like a rising tide that lifts all boats, your industry defines a range of values at which your business is likely to sell. Whether you fall at the bottom or the top of the value range is often not down to what you do, but more how you do it.

Customer Satisfaction is one of the 8 drivers of business value. If you can prove customer satisfaction to someone interested in buying your business, they are more likely to prefer your business over another. They are also more likely to offer you a higher than average offer.

Our customers are very satisfied with what we do

This is a statement we hear time and time again when we discuss this topic with business owners. Firstly, it is not the satisfied customers talking to you who cause concern. It is the silent majority who never use your services again that you need to understand.

Secondly, we need to be able to prove satisfaction levels. Without an objective measure to prove it, the statement is worthless.

How do I effectively measure customer satisfaction?

This is the simple part. You need just one question and an 1-10 scale of answers. Here it is;

Net Promoter Score Question

That’s it.

Just one question to ask and from this you calculate your Net Promoter Score.

The Net Promoter Score

Because of it’s simplicity, there is no reason not to ask this question to your customers. Companies across the globe and in every sector of business are asking this question as part of their ongoing customer satisfaction surveys. Some, like Ikea are putting a push button console at the exits of their stores.

If you ask this question to your customers, you have the ability to benchmark, and more importantly, you have hard evidence to your own customer satisfaction levels. This alone improves the attractiveness of your business to potential buyers.

Why would my customers leave me?

A simple calculation of your survey results get’s your Net Promoter Score which splits customers into 3 groups.

Detractors – Anyone who has provided a rating of 0-6. You can count these respondents as unhappy customers. They’re the one’s you need to engage with and determine the reasons for their response. They will leave you in a heartbeat for a cheaper alternative.

Passives – Whilst a score of 7-8 might seem high, these customers are satisfied but also fickle. They’ll be tempted away by competitors and not as likely to recommend you to others.

Promoters – The happy customers. Those who rate your product, company, service etc with a 9-10. These are the customers who you are likely to have for life. They will purchase repeatedly and are hugely valuable to you.

customer satisfaction and the importance to business value

How do I improve customer satisfaction ratings?

When strategising, the main questions you should be asking yourself are

  • Who are your customers?
  • Where do they come from?
  • What do they come to you for?
  • Why do they come to you ahead of the competition?

Without knowing the answers to these questions, it’s difficult to provide customer satisfaction.

Know what your customer expects of you

Successful businesses don’t base their efforts on guesswork. They take the time to research and gain an in-depth knowledge of their customer base. Once researched a company tailors their products and services accordingly to meet and exceed customer expectations.

Take Sir Clive Sinclair whose earlier success was one of the first slimline calculators. That naturally moved into computers, with his ZX Spectrum considered pivotal for the British home computing market.

Then he moved into electric vehicles. But in the 1980s people aspired to drive top end sports cars or Range Rovers. The Sinclair C5 was essentially an electric bike.

The ZX Spectrum had delivered exactly what the consumer wanted – an affordable first home computer. The Sinclair C5 had miss-judged expectations by a mile. To some extent the company became a laughing stock that customers no longer wish to be associated with it.

Customer satisfaction and business value

What is the difference between customer service and customer satisfaction?

Research shows that businesses with world-class customer service grow at a long-term rate of 20% per annum.
Those with only an average level of customer service see only 4% growth.
Businesses with below average customer service are unlikely to grow at all.

In our opinion, there is a subtle but critical difference between customer service and customer satisfaction.

Customer service is your customers’ perception of how your company treats them. These perceptions affect their behaviours, and build memories and feelings to drive their loyalty.

To deliver poor customer service (a service that falls below your customers perception of acceptability) is to guarantee a poor customer satisfaction rating.

Reporting customer satisfaction for local government

It is perhaps easier to explain with the meteoric rise of budget retailers such as Aldi in the UK compared to someone like Waitrose.

Before you set foot in an Aldi store, you have a perception of it. It is a no-frills shopping experience. Less variety of product because the store space is smaller. Lot’s of own brands rather than recognisable names which perhaps makes you question their quality. They pile produce hight and sell at low prices.

Compare it to Waitrose. Often there is a customer service desk at the entrance welcoming you inside. There is a cafe if the whole shopping experience exhausts you. Wider, more spacious aisles. Ambient music. A deli counter. Large variety of branded goods on sale. This superior shopping experience is what we have come to expect from Waitrose.

Now imagine you visit Aldi to find they’ve no bread. The shelves are empty. Your opinion of the brand was not great to begin with, so you may have been waiting for them to let you down. Your expectation of their service was low and they met it. Therefore, your satisfaction with them is unchanged.

Now the same scenario in Waitrose. You expect more of that brand. You expect them to be more organised. To be better at planning deliveries and to have contingencies when things go wrong. Your expectation of the Waitrose brand was much higher to begin with and the fact that they have let you down does affect your opinion them. They have disappointed you and you may well score them lower in customer satisfaction as a result.

This is a simplistic example and in reality, there are many fore facets which set a customer’s expectation to begin with, and many more which would have to go wrong for a business to fail them, but you get the point.

Find out what your customer expectations are

The Founder of stationery giant, Staples Inc, Thomas G Stemberg once said;

“Forget ‘branding’ and ‘positioning’. Once you understand customer behaviour everything else falls into place.” 

With that said, what can you do to tap into your customers’ expectations?

Take an inward view – what kind of service would you expect from your company if you were your own customer? Think in terms of products but also the wider picture, what’s the customer service like? How do the staff talk to you? Are queries dealt with how you expect them to be? Mystery shop your own business.

Make them a priority – if you’re not thinking of your customers as you operate your business, then how can you be thinking of their expectations? Yes, you should find productive ways of working but not at the detriment to your customers.

Let’s get personal – Around the globe, 96% of consumers say customer service is an important factor in their choice of loyalty to a brand. Americans will pay 17% more to do business with firms with great reputations when it comes to customer service.

Nurture your customers.

Nurture your customers

How can customer satisfaction add value to your business?

Understanding this behaviour helps businesses identify their target market and which products they are likely to want to purchase. This knowledge allows businesses to;

  • Create targeted marketing campaigns
  • develop new services and products
  • understand their USP
  • forecast spending and create an improved customer experience
  • use the net promoter score as a positive driver of value

……all whilst getting the upper hand on your competitors. Take time to build your relationship with your customers, understand their expectations and see this not only as a means of prosperity but also to demonstrate to buyers that your customer retention strategies are solid.

Financially better off

Now, we may have said that not all value in business is monetary. However, it is important to highlight how much of an impact customer expectations can have on your revenue streams.

Happy clients and customers are more likely to develop loyalty to your company, allowing you to retain customers more easily. Customer retention is the next step.

Attracting a new customer is up to 7 times more costly than retaining a current one. And with 52% of consumers reportedly making an additional purchase from a company as a result of a positive customer experience, the figures speak for themselves.

business value

Conclusion

Understanding customers and their importance to your business is one of the 8 key drivers business value that we cover in our coaching. We also take a deeper look into the Net Promoter Score and customer surveys. To take a brief look at what else is covered, request a brochure here.

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