The four golden returns of better customer satisfaction

By Jo Causon, CEO, The Institute of Customer Service

Our report, that has just been published, is the most detailed UK study that I am aware of looking at the relationship between customer satisfaction and financial metrics such as turnover and profitability. To produce the report we analysed the customer satisfaction performance of UK companies using data from the UK Customer Satisfaction Index (UKCSI) since 2008 and mapped that against financial information from those companies’ annual reports and other public data.

The results? One headline finding was that organisations with customer satisfaction at least one point higher than their sector average achieved average annual turnover growth of 9.3%, versus flat growth for those with lower satisfaction. Turnover growth was consistently higher across time periods (although the relationship with profit margins was more complex due to the range of external and internal factors affecting short and medium term business performance).
For me, four key themes really stand out.

Firstly, higher customer satisfaction correlates with higher revenue growth as per the example above. What’s more, over a longer timeframe, average compound turnover growth is greater for organisations with higher customer satisfaction than their sector average.

Secondly, where an organisation outperforms its competitor set in its customer satisfaction scores, it will outperform them in revenue growth too.

Thirdly, the higher the customer satisfaction levels an organisation generates, the more productive its employees are. The average revenue per employee for organisations with higher than average sector customer satisfaction is over £550,000 compared to less than £260,000 for those with lower than average sector customer satisfaction.

Finally, where organisations see customer satisfaction as a key part of their strategic change or transformation programmes, they are more likely to see consistently strong performance in terms of customer satisfaction.

The suggestion is that where Boards focus on service strategies, satisfaction and employee engagement, there is a real, and sustainable – difference to the bottom line.

These results make perfect intuitive sense and chime with what we have been consistently saying in recent years. Revenue performance benefits from customer satisfaction because happy customers are more likely to buy more, more often, and recommend a company to others. Meanwhile, the precise opposite is true where customers are left dissatisfied. These effects of this are amplified through social media where customers can quickly spread their gripes or praise.

Meanwhile, happier customers make for more positive employees (remembering that 70% of roles in the UK are customer related). More positive employees are better motivated, quicker to engage and more productive.

It sounds simple and in many ways it is. However, I have to ask whether enough Boards are acting on this fully. Many Boards are, I believe, still failing to see customer satisfaction as a key strategic driver. Often, they could be reporting more extensively on it too.

That brings me to investors. Many of them also need to change their perception of customer satisfaction and look at it as the performance differentiator it is. It is not just an operational nice-to-have: it’s a genuine key performance indicator. They need to start asking Boards more searching questions around customer satisfaction and embedding it firmly in their analysis models. They need to take it seriously.

Our research reveals for the first time the extent to which customer satisfaction levels correlate with pounds and pence. For businesses, and their investors, it really can generate golden returns.