You’ve probably asked yourself: What are the ways to grow my business? And my guess is your answer was: By increasing my customer base.
Since growth typically comes through sales, new customers would help you grow. But what if you had only 50 customers in the first year and 50 in the second year? Could you have grown year-over-year? The answer is yes. Why? Because in the first year you sold them each one item, but in year two you sold them two items each. If you quantify that in sales dollars, assuming $1 per unit per customer, in year one you would have had $50 in sales and in year two you would have $100 in sales.
Think about the growth you could achieve by not only adding new customers but by also selling more to your existing customers. Existing customers already know you and, if you are doing a great job delivering to them, the likelihood of them buying more is probable. It also costs you less than acquiring new customers. That does not mean you should abandon obtaining new customers, it just means selling more to existing customers is also a very important business growth strategy.
Getting new customers and selling more to existing customers is great, but only if your business is highly profitable. Improving your margin is equally as important as growing sales. You need to do this since, without strong profits, you cannot reinvest in the business to accomplish your growth goals. So, your third method of growth is improving your margin and overall profitability by evaluating and improving the effectiveness of your business processes.
Our fourth method is customer retention. Regular monitoring of your customer sentiment through measurement of customer satisfaction is often overlooked.
As a customer yourself, you may have noticed the emergence of digital surveys. Some surveys are very detailed, and others simply ask one question: How likely are you to refer us to a colleague or friend? That’s usually done by rating them on a scale of 1–10. One is described as very unlikely and 10 is very or highly likely. This generates a very strong indicator of customer satisfaction, referred to as the Net Promoter Score (NPS). The ratings are as follows.
- Promoters (9-10) are loyal enthusiasts who will remain customers and continuously refer you.
- Passives (7-8) are satisfied but unenthusiastic customers who are vulnerable to competition.
- Detractors (0-6) are unhappy customers who can damage your brand and spread negativity to others.
To calculate your NPS Score, take the total the number of detractors, divide by the total number of responses, and multiply by 100. Take that number and subtract it from 100 percent and that will give you your NPS Score as a percentage.
It is important to track this and measure it against your own performance and, if you can, against your industry. This metric, along with a comprehensive customer survey process, will give you the information you need to improve customer sentiment. Collectively these four methods, along with executing detailed strategic plans, will help you grow your business. ●
Mike Pappas, CPA, CEPA is Director of Barnes Wendling CPAs