The ROI of Customer Satisfaction
Updated: Aug 27, 2020
I have seen many CSAT programs change a company’s culture by quantifying problems and isolating their causes, thus boosting retention and profitability, and moving from reactive to proactive.
Conversely, some companies don’t think that customer satisfaction (or "CSAT") programs can add value because “we know our customers”. This comment conveys a misunderstanding of what a well-designed CSAT program is, and the value that it can bring to an organization.
In the short term, maintaining the "status quo" is a cheaper alternative, but it avoids the broader discussion about total (opportunity) costs. How much revenue are you leaving on the table by assuming that you know what the customer wants?
Here's a basic example. Let's say you run a $50MM company. What would you be willing to spend to prevent 10% of your customers from leaving?
At a 30% gross margin, you saved $1.5MM in profit. A CSAT program that costs $50K a year has an ROI of 30x! Now do you get it?
Even if we are conservative, a 5% reduction in defection produces $750K in savings, and an ROI of 15x – still impressive! By improved problem detection, by alerting key people about problems in real-time, thus cutting response time, we help mitigate customer defections and avoid a significant amount of lost business.
What are the fundamental problems with what I call a “status quo” approach? Here are a few:
Markets are changing. Your competitors are not standing still; they will continue to innovate, merge with others, or be acquired. Markets themselves morph from regional to national to global, and regulatory frameworks change.
Customers are changing. New customers replace old, and this year’s buyers are demographically, attitudinally, and behaviorally different from last year’s buyers, who will be different next year’s. How are you planning for that?
Expectations are changing. Customers are constantly evaluating their choice options within categories and making both rational and emotional buying decisions.
Maintaining the "status quo" is NOT a strategy: it is a reactive footing that forces you to play defense. In a status quo culture, you are not actively problem-solving on behalf of customers, nor are you focused on meeting their future needs!
Consider a couple of scenarios in which a CSAT program could add value:
If you run a smaller company, most of the company’s employees (including management) are interacting with customers every day. The company also gets feedback, albeit subjectively or anecdotally, every day. Corrections to sales or production processes can be done rapidly, and the customer is presumably happy. But even in smaller companies, there is limited institutional memory (i.e., a standard way to handle a problem or exception). One solution may reside with Fred in finance, another with Pat in production, or someone else entirely. There are no benchmarks to compare performance (other than sales). It is likely that the same problem will surface repeatedly because line staff or did not communicate with each other, or it might appear in another form in another department (i.e., a parts shortage caused by an inventory error). Unless management is alerted, larger “aha” discoveries are missed. This can cost hundreds of thousands of dollars in lost revenue.
If you run a large company or a major division, the gulf between customer feedback and management grows wider. News about problems may not reach management because they are viewed as unremarkable. And a company doesn’t have to be huge for these dynamics to occur. The evidence shows that by the time a company reaches just 100 employees, it behaves much like a multi-national enterprise. In a small company, it is everyone’s responsibility to fix a problem; in a large organization, it becomes someone else’s responsibility. The opportunity loss becomes even greater because there is no system in place to alert key staff or a specific department. As a result, millions of dollars in revenue can be lost.
A well-designed CSAT program that alerts the appropriate people or department can add significant value. At Surveys & Forecasts, LLC we offer basic CSAT programs (with key staff alerts, dashboards, and an annual review) for just $1,000 a month.
Get in touch to learn more! We’d love to work with you and help you improve satisfaction, retention, and save your organization some significant money.