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How much is a satisfied customer worth to your business?
While statistics vary, one Bain & Co. study shows that increasing your customer retention rate by just 5% can increase your profits by between 25% and 125%.
Beyond juicing your current profitability, satisfied customers can also significantly impact the long-term value of your company — provided you have a reliable way to measure customer satisfaction.
That’s why Net Promoter Score® (NPS)1 is a tool used by millions of businesses, as well as many acquirers, to measure customer satisfaction. NPS asks respondents to answer one question using a 0 (highly unlikely) to 10 (extremely likely) scale: “How likely is it that you would recommend our company/product/service to a friend or colleague?”
The answer to that question turns out to be highly predictive of your customers doing two things: re-purchasing from you and referring you. Since recurring revenue and word-of-mouth advertising are the raw material of explosive growth, your NPS score is a significant driver of your company’s value.
Over at The Value Builder System™, we’ve evaluated tens of thousands of businesses and use NPS as an objective measure of the level of satisfaction among a business’s customers. We measure seven other value drivers, but having satisfied customers is arguably one of the most important.
Adam Torres Used NPS to Get a Life-Changing Acquisition Offer
For an example of how NPS relates to your business’s value, let’s look at the story of Adam Torres, the founder of TeamDynamix. TeamDynamix is enterprise software for colleges and universities to manage applicants, among other things.
Torres understood that enterprise customers, especially those in the higher education and government sectors, tend to be slow to purchase. But once they make a buying decision, they are slow to change — as long as they remain satisfied.
To measure the level of satisfaction among his customers, Torres embraced NPS. He based employee compensation party on his company’s NPS scores — not just for salespeople, but even at the software developer level.
Torres’s focus on NPS enabled him to cultivate a happy and engaged group of subscribers. Satisfied clients meant they stayed a long time, which boosted TeamDynamix’s customer lifetime value.
Sticky customers made Torres’s business extremely attractive to potential buyers — so much so that Torres felt his company could be worth as much as three to five times its revenue. After fielding multiple offers, he sold the company for an amount he says ensured “work doesn’t become a necessity anymore, ever again.”
The takeaways? For many business owners, rave reviews are an indication of customer satisfaction. So are complaints. But without a reliable tool, objectively measuring customer satisfaction is nearly impossible.
That’s why NPS is as helpful for smaller businesses as it is for Fortune 500 companies. Survey administration and data collection are easy. The burden on respondents is minimal. Benchmarking your business against others – whether you’re giving feedback to employees, seeking money from investors, or negotiating with a potential acquirer — is straightforward. Best of all, NPS is a tool that is shown to predict the growth of businesses. Working to improve your score can help fuel your company’s growth in the short term and its value in the long run.
If you’re keen to start measuring your Net Promoter Score, we’ll do it for you twice a year as part of using The Value Builder System™ for your business. Complete this questionnaire to get started.