The Four Metrics of Success
In his book, First, Break All the Rules: What the World’s Greatest Managers Do Differently, Marcus Buckingham put forth one of the best definitions of high-performance companies I have ever heard.
He suggested that when comparing corporate performance, four metrics could be used to gauge success.
The first two measures—growing sales and increasing profits—would seem obvious. Growth and profitability would be included in any standard performance definition.
But in his definition, Buckingham added a high degree of customer loyalty and low staff turnover as key predictors of business performance. Although it’s difficult to accurately measure these corporate attributes or to value their worth on your balance sheet, they do contribute significantly to your success.
Customer retention—the business of getting people to come back to your company again and again—is the biggest measure of their loyalty. Bain & Co. has conducted research that suggests that each 1 percent of improvement in customer retention contributes an additional 10 percent to bottom-line profits. You can’t afford to have a single customer defect.
Consumers surveyed by Indianapolis-based research firm Walker Information indicate there’s a growing gap between the percentage of people who say they’re “satisfied” with a business and those who consider themselves “loyal” to that business, meaning they’re intent on maintaining the relationship and continuing it into the future. “Many companies have figured out how to deliver satisfaction, but they’ve not yet figured out how to earn loyalty anywhere near those levels,” says Jeff Marr, group vice president for Walker.
In fact, up to 60 percent of customers who defect from companies say they’re not really terribly dissatisfied. Most leave because they were simply ignored and felt their business wasn’t valued.
“Some 43 percent of Americans say they feel ‘trapped’—likely to continue doing business with the top retailers, but less than pleased with the relationship they now have with them,” Marr says. That means retailers can count on less than half of their customers being loyal.