Why Customer Experience Matter for Small Businesses. Think Referrals.

There are two experiences we remember as consumers, great customer service and bad customer service. Everything in-between, those experiences we tend to forget about. When we have bad experiences, we never go back. In fact, bad experiences cause visceral reactions and we in fact become detractors. We tend to produce negative press for the business, either through word-of-mouth telling people not to use the business or writing negative Google reviews. Great customer service businesses tend to also produce a visceral reaction, but in a positive way. Great customer service businesses do all the right things, they produce what you’ve promised, they do it on-time and sometimes even surprise and delight. The positive visceral reaction causes you to promote the business. You tell your friends, colleagues, family about the business because you want them to be taken care of, the way you were taken care of.

Net Promoter Score

What I outlined above is an example of Net Promoter Score, the Nort Star customer service metric. Net Protomer Score, invented by Bain & Company in 2003, asks one simple question, “What is the likelihood you’d recommend a company, product, or service to a friend or colleague?” Respondents rate a company on a 0-10 scale. 9 & 10 are promoters, 6 and below are detractors, and 7-8 are removed. You subtract the percentage of detractors from the percentage or promotors and that’s your Net Promotor Score. A one score index.

Benchmarks vary by industry, but without a doubt, companies can be indexed and you don’t want to be at the bottom of the index. Being at the bottom of the index means there are inherent flaws with the business and customer will detract. Being at the top of the list, like Apple & Amazon (both 61) means customers will promote your company. Customers will also stick around.

Why Net Promoter Score Matters

Net promoter score matters because it demonstrates how your customers and clients perceive your business. It’s your clients telling you if they had a good experience with your business and if they will return or not. Net promoter also matters because it’s the easiest survey you can send and, in turn, receive feedback. You don’t need a ten to fifteen minute complex survey to understand client feedback, you can do it with one simple question. Of course, there are critics of Net Promoter Score because of reliability of the data or NPS doesn’t detail what clients like or dislike about their interaction with you, but it’s doubtful customers will complete a survey of more than one question.

When customers complete surveys, you get insights into your business, good and bad. You get to see how the customer services changes you’ve made over time improve NPS. But beyond improvements, NPS is a great indicator for referrals, loyalty and retention, which leads to indicators company growth and valuation. In a Bain & Co’s study, they show that companies that are NPS leaders outgrew their competitors by a massive 2x. In some cases, they even see a 3x growth rate. Finally, it goes as no surprise that companies that outperform their competitors in revenue and customer service will have higher valuations.

Referrals

Having a high NPS leads to more referrals. According to Nielson’s, which surveyed over 28,000 respondents, 92% of consumers trust recommendations from friends and family above all other forms for advertising. Friends and family recommendations score higher than any other form of advertising.

Neilson’s Advertising Trust

What the graph above doesn’t account for is advertising cost. Other than the cost of doing great business, referrals are essentially free. When you do good work for a client and one of their friends asks where they can find a business like yours, the client gives you a referral. Every other form of advertising on the list, including SEO is going to cost money. Some forms of advertising will cost you a lot of money. Customer Service is one of the most important CAC reducers around.

Not only are referred customers the most cost effective customers, referred customers are the best customers. According to a 2021 study by Deloitte, referrals have a 70% higher conversion rate, and according to the Journal of Marketing, referred customers are 16% more profitable. It truly pays to be great at customer service.

Retention

In addition to referrals, companies with a higher NPS have much higher retention. As we previously wrote, having a high retention, also known as LTV (long term value) is one of the best indicators of company valuation. When you have a high NPS, you retain more customers and the more your business grows. When you retain customers, even for non-recurring revenue businesses, they are 54% more likely to make another purchase and have a 34% higher average order value (AOV). Additionally, referred customers have a 18% higher loyalty rate, according to Wharton Business School.

The data does not lie. If you want to build high retention, focus on improving NPS and customer service.

Should you Measure or No Measure?

As the old adage goes, you can’t improve what you don’t measure, therefore, we advocate measuring NPS. Sure, you can build a great customer service company, but how do you know how you are actually performing? Without measuring, it’s just guess work, you are flying blind. Beyond retention and referrals, below are the reasons why we believe it’s important to measure NPS:

• Measuring NPS is inexpensive. Most surveys are expensive because you need an expert to write and measure them. Try writing a great survey, it’s a lot harder than you think because it’s easy to skew the data. NPS is the opposite. It’s one question and you can easily send the NPS question following the completion of work. The analysis is also very easy and can be automated

• NPS is a survey that customers are more likely to complete. By asking just one question, rather than a long survey, customers will give you feedback

• It’s data you can show to Buyers. In the lower-middle market, it’s unlikely that your competitors will be measuring NPS. By showing a buyer than you measure NPS, it will demonstrate to them just how much more buttoned up you are, especially if you can demonstrate improvement over time. Additionally, measuring NPS will lead to strong valuation multiples

• It’s data you can show to clients. Believe it or not, customers understand NPS. It’s easy data that you can translate to customers to show them how strong your customer service is and how much your customers mean to you

• Company Culture. Measuring NPS and sharing it with your employees is a great way to build a customer focused workforce. You can even build bonuses based off improvements to NPS

What You Can Do to Improve Customer Service

• Map the customer journey. Without mapping the journey your customers take with you, you will never know the moments of success, pain points, and surprise and delights. Most people map the journey in their heads, but few actually document the journey. Put data to the map. Show how long clients wait or how many times you solved their needs with one phone call. The goals can be to make a client’s journey as efficient as possible or to build surprise and delight

• Deliver what you’ve promised. Deliver to clients the same way you’d want to be serviced. In fact, if you can over deliver, clients will notice. Under delivering or making clients ask about work you should have completed is a recipe for disaster. You should also measure internally how often you delivered what you promised.

• Be fair on pricing. Customers don’t want to be taken advantage of, regardless if you are selling a value or premium oriented product. You want customers to feel good about the price they’ve paid

• Speak to your customers. It’s much easier to complete work and never follow-up with your clients. However, clients appreciate a check-in from time to time. It demonstrates to them that they matter to you. It also opens a more trustworthy line of communication where you can receive honest feedback that they’d never give in a survey. Don’t stop at communicating only with new clients, you should also communicate with exiting clients

• Build a customer focused culture. Train your team about customer service and why it’s important. Teach them how to interact with clients and your expectations. Show your team customer service data, like NPS, to understand what is and is not working. But most important, have your team develop ideas on what they can do to improve customer service. We promise that when they see their ideas in motion, it will build an immense amount of pride

Conclusion

NPS matters and good customer service matters. Strong NPS leads to higher retention, referrals, and valuations. But, most importantly, NPS builds a culture of putting customers first. Even though we all want to grow our businesses and have big exits, none of that really matters unless customers are taken care of. We would even go so far to say that companies with the best customer service have the highest valuations.