Over the last year, we’ve completed nearly a dozen due diligence projects on behalf of both Private Equity investors and companies making acquisitions. One of the questions we always ask during customer interviews is, “On a 1 to 10 scale, What is your level of satisfaction with the company?”
We recently sat down and reviewed the data from all of these projects side by side and came to an unexpected conclusion: If your average customer sat rating is under 7, you’re probably toast.
So why is that the case?
In a nutshell, a customer sat score of 7 is a tipping point. If you fall just a little bit below that level, things start to deteriorate pretty quickly. On the surface, this doesn’t make intuitive sense. While a 6 or even a 6.5 out of 10 is hardly a good score, it doesn’t seem like something fatal.
However, while a company with an average sat score of 7 has a few unhappy customers (ones with scores of 5 or less), the share of unhappy customers grows quickly when the average sat score falls below that level…and companies with a large number of unhappy customers find themselves in a downward cycle that is very difficult to recover from.
A Company with an Average Sat Score of 7 out of 10 Will Have a Few Unhappy Customers
A Company with an Average Sat Score of 6 out of 10 has Many Unhappy Customers
Here’s how it works:
- Unhappy customers are usually unhappy because the solution is not delivering on its promise.
- This in turn drives up support and service costs and leads the company to devote more and more of its engineering budget to fixing problems instead of developing new features.
- In addition, a company with many unhappy customers finds it far harder to sell more to their existing customers and to attract new customers.
- With lower revenue and much of its budget going to maintenance, the company fails to innovate, making it less competitive and upsetting more customers
- Which brings the company back to #1, just with more unhappy customers.
There is one way to pull out of this cycle: Extreme Focus. Extreme focus means walking away from existing customers and prospects who are not in the dead center of the company’s sweet spot. It is painful to do, but the alternative is even worse.
Looking to fix or avoid a customer satisfaction crisis? Topline Strategy can help. firstname.lastname@example.org