How to attach the value of feedback to profitability
Most people have a innate understanding that feedback is important and can have a direct impact on an organisations performance. Yet in order to commission any feedback project it is important to understand the real value to the company.
Here we will look at a simple example of how a simple feedback program can be tied into profitability.
One the most accepted and most powerful tools to increase profitability is a personal recommendation. We will look at a simple example here to emphasise the point.
If a company turns over £1m and 50% of those sales are directly related to a personal recommendation, we can easily attached a value to that recommendation of £500k. The cost of those new sales is approximately zero, as customers do not need to be paid to make that recommendation.
If the percentage of active recommenders dropped for some reason to say, 10%, then we can easily see £400k of new sales are being lossed.
Therefore each 10% swing equates to a £100k of additional or lost sales.
So as recommenders decrease, spend on traditional methods (e.g. advertising) to gain customers needs to go up in order just to maintain the same turnover. As recommenders go up, less spend is needed on these traditional methods.
There are a multitude of questions you could ask about a customer’s satisfaction, relating to the transactions a customer went through to become a customer. However, the easiest question to ask relates to the outcome of their experience. The best indicator of this is their enthusiasm to recommend.
So Where do you start?
First, find out what percentage of people who are current customers do so as a result of a recommendation. This could already be known from existing sales data which could serve as a starting point. As in the example above, the value of those recommendations can easily be calculated.
Secondly, find out how enthusiastic they would be to recommend you after they have been a customer. This is easily done on a 0-10 scale.
Lastly, ask why they scored the way they did. This would help you understand what particular experiences were the main factors in their enthusiasm to recommend you.
As we are not demanding the customer answers dozens of questions, just two, it’s a relatively easy for a customer to participate in a survey to give you the answers.
How to gather the answers
If you know who the customer is, it’s a relatively easy thing to ask them the necessary questions. Customers could for example
- Complete a web survey which is sent to them via email after a transaction or at a given point.
- Call a call centre or complete a phone survey after a telephone transaction.
- Receive a feedback card with a product or handed to customers after receiving a service, sent back through Freepost.
- Use their mobile phone to complete an electronic survey.
If you do not know who the customer is, more effort is required to communicate and engage with them and get them to respond. E.g. customers may be willing to tell you what they think or require some incentive to respond (e.g. vouchers off next purchase)
Given the simple nature of the results, customer responses can either be stored in an electronic database (best) or an Excel table during the data gathering phase. At the end of that phase, the data can be brought together for analysis.
Examining the Data & Calculating a baseline.
From above, we have two elements of data. One is the score (0-10) and the other is the verbatim comment.
We can break the respondents down into three groups:
- Promoters (those who score 9 or 10)
- Passives or neutrals (7 or 8 )
- Detractors (0-6)
Promoters are active recommenders of your products and services. They are highly likely to encourage friends and colleagues to purchase from you. People who are neutral, still consider you well, but not so well as to risk their personal reputation to recommend you. Lastly, detractors are people who would put others off from using you. The lower their score, the more likely they will be actively discouraging other potential customers.
The baseline can be calculated simply by taking the percentage of active recommenders less those who are active detractors. i.e. the net promoter score (NPS) is:
%Promoters – %Detractors
So if you have equal percentages of both, the net promoter score is 0. I.e. the positive impact of people who recommend you is balanced by the number of people who discourage others. So the net gain in sales as a result of the recommending activity is zero.
What to do with the data?
Any data that is collected should guide necessary actions that improve the score, and therefore referrals. When you look at the verbatim comments attached to each group of people, it usually says what you are doing well that stimulates referrals, and what is going wrong that detracts from it.
So a simple action plan could be to gather the appropriate staff, praise them for what’s going well (encouraging more of it) and look at ways how to fix the problems highlighted in the feedback.
Better still, you could deliver the insight instantly to the appropriate person so they can address the issues in the shortest amount of time. By tracking their actions you add value to the regular management meetings: you will be looking at what has been done rather than what needs to be done.
By continuously monitoring a customers desire to recommend you, and putting in place a framework to help them say, you are in a far better position to continuously improve referrals and profitability. By looking at the NPS score on a regular basis, you can attached this value to the revenue derived from recommendation.