Most companies spend a lot of money on attempts to acquire new customers, and don’t spend anything on systems that will increase the loyalty of existing customers, which will increase referrals and revenue.

Extensive research validates that loyal customers buy more, stay longer, refer friends, and provide feedback that will help you improve your business. Since that is the case, it amazes me how many businesses don’t even measure customer loyalty.

If you don’t have a formal system for measuring and responding to customer loyalty metrics, you have two problems:

  • You have service issues negatively affecting your customers that you don’t even know about. The chances are very high that dissatisfied customers are telling a lot of people how bad you are.
  • You are missing opportunities to gain referrals from your existing customers. A referral from an existing customer has the highest likelihood of conversion to revenue.

 

Frederick Reichheld (Director Emeritus of Bain & Company), carefully researched the relationship between customer loyalty and revenue growth. He concluded that “if growth is what you’re after, you won’t learn much from complex measurements of customer satisfaction or retention. You simply need to know what your customers tell their friends about you.

Reichheld promotes the use of the “ultimate question” in customer loyalty measurement, which is: How likely is it that you would recommend Company X to a friend or colleague? The response scale is 0-10 with a 0 or 1 response considered “extremely unlikely”, a 5 response considered “neutral”, and a 9 or 10 response considered “extremely likely”. Respondents are grouped in the following categories, based on their response; Detractors (0-6), Passive Supporters (7-8), and Promoters (9-10). I would characterize the behaviors of each of these groups as follows:

Detractors – Will tell everybody how bad your service or product is.


Passive Supporters – Will refer your company if someone asks them.


Promoters – Will refer your company without being asked.

 

Research validates that a Detractor will tell 22 other people how bad you are, so it is clearly to your financial advantage to have a system in place to identify Detractors, so you can take action to mitigate any damage they might do to your business.

Research also validates that B2B companies that focus on converting customers to Promoters realized an average increase in annual revenue of 23%.

If you have not read the Harvard Business Review that summarizes this research, The One Number You Need to Grow, please email me and I will send you a copy. My email address is doug@thedougwilliamsgroup.com.

If you would like me to review the systems you currently use to secure referrals, feel free to contact me. I will do my best to show you how your current approach could be improved.

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