What Your Company (Tax) Return Will Tell You About Future Performance

How you can use a simple indicator to predict the future growth of your business.8055190879_632de00da5_z

Most of the indicators that you will receive from your accountant in the coming weeks will be what are known as lag indicators, they report on an event or period of time that has already passed, that period being the 2013/14 financial year. It is vital to learn from this historic data and use it as a basis for planning your business moving forward.  However there are also lead indictors that you should be reporting in your business on a regular basis that will give you an indication of future performance.

Research has shown that the two most common lead indicators to business growth are:

  1. Customer Satisfaction
  2. Staff Morale

Many businesses have an excellent understanding of their financial KPIs such as sales growth and profit margins but do not measure customer satisfaction. However nothing will improve customer satisfaction faster than measuring it regularly.

Fred Reichheld, a leading business consultant in the USA has extensively researched customer loyalty (a result of customer satisfaction) for the past twenty five years. He believes that the measurement of customer loyalty can be simplified down to one simple question;

How likely is it that you would recommend this business to a friend or colleague?

The results of this question can be used to calculate what is known as your Net Promoter Score, or NPS. The NPS has been widely adopted as a key measurement across the business world and has been described by the CEO of General Electric as ‘the best customer metric I have ever seen.’

NPS is based on the concept that your most loyal customers, or Promoters will tell their friends and colleagues about the fantastic service you are providing.

Customer responses to the question above are scored out of ten and are ranked as follows:

  • Those scoring a 9 or 10 are promoters – very satisfied customers.
  • Those scoring a 7 or 8 are known as passives – easily wooed by the competition.
  • Those scoring 6 or below are detractors – unhappy customers.

Your NPS is your percentage of promoters minus your percentage of detractors. The percentage of passives is not used, however the more of them, the lower the score, so they do influence your NPS.

According to Reichheld your NPS is the most reliable indicator of your business’s potential for growth. His research has shown that the fastest growing businesses tend to score 50 – 80% with the average score falling in around 5% – 10%.

In 2006, Mark Ritson, Associate Professor of Marketing at the Melbourne Business School , used NPS to predict the growth of companies operating in Australia at the time.  Top of his list to grow was Aldi, and one of the most likely to fail was Swedish car manufacturer Saab.  Since his report Aldi Australia have gone on to record profits and more than double in size.  On the other hand Saab nearly went bankrupt in December 2009 when parent company General Motors announced they would discontinue making Saab cars due to the brands poor performance.

In the new world of travel, nothing could be more powerful than a customer referral. Where agencies are trying to position themselves to charge for their expert advice, what better way to sell this to others than a referral from a friend or colleague. It is essential to confirm that you are delivering a customer experience that is going to generate referrals.  Measuring Net Promoter Scores is a great way to do this.

Final Thought: It’s interesting to note that Aldi scores very well on NPS despite the fact they do not champion customer service. This suggests that customers will judge your business on its overall offering not simply the level of customer service. Customer satisfaction is not the same as customer service.

– by Chris Young, Head of Fulfilment at the Resurg Group