Perfect Service--Creating Return on Satisfaction Metric

In a typical company, decisions are made through the daily push and pull of today's priorities. What drives these priorities? A lost sale, an itchy CFO, a budget commitment gone wrong, a competitor's press release.....just about anything. As I watch priotization processes at various companies, I am amazed at the lack of connection to a strategy or commitment to make tough decisions of what not to fund. A company committed to "Perfect Service" has a clear filter upon which to prioritize--the customer's voice.

By using client satisfaction as the key determinant for prioritization, the approach becomes straightforward: invest in activities that will make the client happier. The higher the impact on client satisfaction, the more priority the investment should get.

This is a key point: Satisfaction needs to be quantifiable and translated into new Return on Investment (ROI) measures. Traditionally, ROI has focused on impact on Productivity (how much cost eliminated) or impact on Sales (how much additional revenue). These commitments to improve return are understandable and assignable to the requestor of the funds. Client Satisfaction is often harder to quanitify...how much return does a company get with an increase in happiness? The answer is "Plenty" and the challenge is to prove it.

There has been a lot of good work on Client Loyalty that we can use to create this Satisfaction ROI metric. I am going to borrow from some of that work (and will reference the author if someone will remind me...)

Using a Client Loyalty scale of 1-5, we can assign values to each level of loyalty:

Score 5--Client is not only very satisfied with your services, but is also making decisions to expand the relationship when given the opportunity. Solid reference. Retention is assured.

Score 4--Client is very satisfied with your services, but has not yet expanded relationship. Solid reference. Retention is assured.

Score 3--Client is ambivalent about your services, and likely not buying any more at this time. Unlikely reference. Retention over the long term is questionable.

Score 2--Client is unhappy with services, and is definitely not buying any more. Retention is unlikely over the long term.

Score 1--Client is publicly unhappy and threatening. Not only is retention not likely, but client is going out of way to let others know of their displeasure.

Clearly moving a client up the metric scale is important, particularly when client retention can be impacted. However, if a company only uses client retention as the main gauge, it will focus on the wrong customers for priority--the clients with 1s and 2s. In actuality, companies with the most loyal and profitabile customers focus on those with 4s and 5s, since they are the keys to growth. The amount of time and spend to bring a 1-rated client to even a 3-rating is considerably higher than bringing a 3-rating to a 4 or 5-rating.

As a company becomes more sophisticated with these measures, the ROI can be calculated for each satisfaction rating.

For example, a 5-rated client will:
--generate profit streams for the next 3 years at 100% certainty;
--serve as a positive reference for at least 3 winning sales bids that will create streams of profitability;
--buy additional product adding 25% to revenue streams.

It is not hard to see how this client has a huge impact on current and future earnings and growth, and its importance is a multiplier against current earnings streams alone.

Another example, a 3-rated client will:
--generate profit streams for the next three years at 75% certainty;
--not serve as a reference;
--not buy additional product.

This client, while important, is not as critical to the company's future as the 5-rated client. The key strategy here is to focus on increasing satisfaction to become 5-rated. The investment here will yield significant return.

Last example, a 1-rated client will:
--generate reduced profit streams for the next three years at 10% certainty;
--not serve as a reference, and take opportunity to negatively impact sales;
--not buy additional product.

The investment in this turnaround will be painful, most likely will fail, and the return even by moving it two levels to a 3-rating will not be enough to offset the cost. Astute companies will identify these clients and resign them so as to focus on more profitable opportunities.