In his book, The Ultimate Question, Fred Reichfield (www.theultimatequestion.com) suggests a simple measurement to determine customer loyalty. His contention is that you have three types or levels of customers resulting from their experience with your organization. Determining which category each one of your customers falls into can be measured by asking one question, “How likely is it that you would recommend us to a friend?” If the responses were sorted on a scale of 1-10 with 1 being ‘not at all likely’ to 10 being ‘extremely likely’, the responses of 9-10 are your loyal customers and provide you with the best word of mouth advertising; 7-8’s are generally not excited about their experience but found their experience to be okay or average; while anyone rating their experience as a 6 or lower is clearly not happy with their experience and may even be angry.

Here is how it ties directly to your revenues and potential profits.

Your Loyal Customers (9-10) are those who are absolutely delighted with your products or services and their experience during the entire purchasing process and follow up. These customers will promote your organization through word of mouth (referrals) and will repeatedly purchase your goods or services. They are your loyal customers.

Your Neutralizers (7-8) are those who are unenthusiastic about their experience with your organization, not totally turned off, but not enthusiastic about it either. They are open to buying from your competitors or perhaps you if the right promotion or situation arises. They are your Neutralizers.

Your Diminishers (0-6) are those customers who are unhappy enough with their experience and with your organization to actively look for an alternative source for your products or services which immediately costs you a revenue opportunity. Your diminishers will raise expenses because now you need to spend more on marketing or advertising. They are Diminishers because they not only will not come back, but they will also actively try to take others with them.

Identifying the percentage of your customers who fall into each category: Loyal, Neutralizers, and Diminishers provide you with metric that will indicate future strength and direction for your organization. We call this metric the Customer Loyalty Score or CLS (http://www.resourceassociatescorp.com/blog/category/customer-loyalty/)

This one simple metric can provide you with an indication of your long-term future because this formula is an absolute predictor of your customers’ future purchasing behavior as opposed to their opinions which are collected through a traditional satisfaction survey. If your customer loyalty metric is going down, your future is not strong and proactive decisions may be needed. If this metric is going up, so will your profits and long-term growth. This metric can be to customer relationships, as an organization’s net profit is to financial performance. This single metric can for the first time provide a target for management and the entire organization to focus upon as an indicator of your business’ growth. No longer should it be the goal of business to only satisfy a customer, but rather it needs to focus on how to make loyal customers for your business!

Tammy A.S. Kohl is President of Resource Associates Corporation. For over 30 years, RAC has specialized in helping businesses achieve high levels of excellence and success by adopting customer loyalty strategies as a critical success factor of organizational success. Learn how at www.resourceassociatescorp.com or contact RAC directly at 800.799.6227.