By John Brandt, Jr., The Brandt Group, Ltd.
For most restaurants, this is the time of the month where managers and owners are reviewing their profit and loss statements for the previous month. A “P&L” is an essential tool in running any successful restaurant. Revenue and expenses are calculated to determine the success or failure for the preceding month’s activity. It’s the true “score card” of performance.
However, a well thought out yearly budget and monthly P&L are NOT the only tools you need to run a successfully profitable restaurant. We have all heard the phrase “word of mouth” advertising. It alone can determine the success or death of a business. Can “word of mouth” advertising be controlled or even measured? The answer is YES to both.
If your business is not measuring your “word of mouth advertising” you are dangerously operating in the dark, the same way you would be if you tried running your business without a P&L. Your business might be wildly successful financially, but your best customers might be slipping out the back door to a new competitor, without your knowledge, all because of your staff’s poor customer service skills. Sure, your expensive advertising is getting them through the door the first time, but are they coming back?
What I keep seeing over and over again is that restaurant owners are running their businesses too close to the P&L in the tactical sense, and not paying enough attention to the more strategic aspect of running their business. While understanding customer satisfaction and loyalty is crucial to profitability, what managers and owners are failing to take into account is how strategic that is to their overall success.
Customer Service is not just about warm and fuzzy feelings. Striving for a phenomenal reputation in your market place just makes good economic sense. Consider these facts:
- It can cost up to five times as much to attract a new customer as to retain an existing one.
- The average business never hears from 96% of its unhappy customers.
- For every single complaint received, the average business has 26 other customers that don’t tell you about their problems.
- Of customers who register a complaint, between 54% and 70% will continue to visit your business if their complaint is resolved. That figure goes up to an impressive 95% if the customer feels that the complaint was resolved quickly.
- The average customer who has a problem with your business tells 9 or 10 people. Thirteen percent will tell more than 20 people.
- Sadly, customers who had their complaints satisfactorily resolved only tell an average of 5 people about the treatment they received.
So how do you go about measuring your “word of mouth” advertising? Ask your customers this one simple question – “How likely is it that you would recommend (our business) to a friend or colleague?” This is “The Ultimate Question”. This one question alone is the best predictor of customer loyalty, and the vast majority of businesses never ask it of their customers.
By asking “The Ultimate Question” you are able to calculate your Net Promoter Score or NPS. NPS is simply the percentage of customers whose answers identify them as promoters, minus the percentage whose response indicates they are detractors. Think about your NPS score like you do your business’ financial net worth – assets minus liabilities. NPS provides a total customer net worth by subtracting the liabilities (detractors) from the assets (promoters). Your NPS score provides you with the single most reliable indicator of your business’ future ability to grow profitably. Restaurant Owners that use this metric are way out ahead of their competitors. In most industries, the Net Promoter leaders have superior growth, averaging more than twice the rate of their competition.
NPS is based on the fundamental perspective that every business’ customers can be divided into three categories. Customers are categorized according to their answer to the Ultimate Question based on a 0 – 10 point rating scale with “0” representing the extreme negative (not likely at all to recommend your business) and “10” representing the extreme positive end (very likely to recommend your business).
- Promoters (those who answer 9 or 10) are loyal enthusiasts who keep buying from your business and urge their friends to do the same.
- Passives (those who answer 7 or 8 ) are satisfied but unenthusiastic customers who can be easily wooed by your competition.
- Detractors (those who answer 0 through 6) are unhappy customers and they tell all their friends.
To calculate your business’ Net Promoter Score, take the percentage of customers who are promoters and subtract the percentage who are detractors. Passives are not figured into the calculation because they are neither promoters nor detractors and can be influenced to shop your competition.
% of Promoters – % of Detractors = Net Promoter Score
The Power of knowing your NPS percentage score provides you with the means for gauging your restaurants’ overall future growth performance and helps establish accountability with your staff. The fact is, 95% of the factors that determine the reputation of your business are the hands of your front-line servers & employees who interface with your customers.
The best way to gauge future potential growth in your business is to calculate your customers’ NPS score. If your business’ “growth engine” were running at perfect efficiency, it would convert 100% of your customers into promoters. The worst possible engine would convert 100% of its customers into detractors.
Businesses with efficient growth engines today are companies such as Amazon.com, Apple Computer, Costco, Harley-Davidson, and Federal Express. All are operating at NPS efficiency ratings of 50% to 80%. So even they have room for improvement. But the average business sputters along at an NPS efficiency of only 5 to 10%. In other words, promoters barely outnumber detractors. Many companies and some entire industries have negative Net Promoter Scores, which means that they are creating more detractors than promoters. These low scores explain why so many companies can’t deliver profitable, sustainable growth, no matter how aggressively they advertise to acquire new business.
Not understanding fully what your customers and potential customers are thinking not only leads to sub-optimal business performance that finds its way into the P&L, it is just plain dangerous. The opportunity exists to grab a substantial market share in this area for any restaurant that understands their customers and their expectations, and puts together a systematic program to meet those requirements. If you lackadaisically meander through your day not paying attention to customer satisfaction, someone who is more focused, more attentive, and reasonably driven will grab your customers and eat your lunch.
Develop your Net Promoter Score by asking your customers “The Ultimate Question,” “How likely is it that you would recommend (our restaurant) to a friend or colleague?”. You’ll discover that over time small percentage shifts, up or down, will have a direct impact on your bottom line profits. If you don’t measure it, you can’t improve it! By proactively measuring customer satisfaction and loyalty through your NPS score you will have another tool as important as your P&L to help you manage your restaurants’ overall success.
We have many clients who use our firm’s Mystery Shopping & Dining service in their restaurants. The use of this tool enables them to “inspect what they expect” from their staff. By using this positive measurement instrument our clients are able to quantify their staff’s overall sales and customer service performance. Their NPS score is also measured during the process. This enables clients to see positive or negative shifts in their NPS score monthly, before it has a negative impact on profits.
For more information on the “The Ultimate Question” from Bain & Company visit their website. This is a great read and I recommend it to anyone looking to grow their business.
John Brandt, Jr. is the President of The Brandt Group, Ltd. a consulting firm specializing in business profit enhancement through Mystery Shopping & Dining, Training, and Operational Development. Mr. Brandt has over 30 years in training and management experience.
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