Calculating the Cost of a 1-Star Review

May 6 , 2021 by in Traffic + Leads + Sales
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Cost of 1-Star Review

Cost of 1-Star Review

 

I am about to tell you something you probably won’t like, and definitely don’t want to hear. And if you’re like most people, you’re not going to do anything about it.

Odds are, you (or your clients if you’re an agency, guru, or coach) do not deserve a 5-star reputation.

There, I said it. It’s harsh, but probably true. Keep in mind though, I have my reasons:

  1. You’re not perfectly exceeding your customers’ expectations. Or…
  2. You’re not making it easy for your customers to review you. Or…
  3. You’re not catching the Negative Nancys before they blabber their sour opinion online (sorry, no offense if your name is Nancy!)

Imagine for a moment, walking into a classy restaurant. The decor is immaculate and beautiful. You’re guided the entire time by a pleasant and detail-oriented staff. The food is delicious and amazing. The experience is more than you were expecting, but the bill isn’t.

What are you going to do? Go back again? Tell people about it? Review them online? Actually, studies show the latter probably won’t happen.

Now, let’s explore a different experience. As you enter another restaurant, you walk by a garbage can and nearly slip on a wet floor of who knows what was spilled. You wait and wait and finally, you’re seated. Today’s special is literally on the menu because nobody cleaned it after the previous guest. Your drinks are never refilled and your meal needs a ton of salt. Not only that, but the bill is higher than expected.

What are you going to do? You won’t go back, but you’ll probably tell others about it and may even leave them a negative review online.

You’re reading this article for a reason.

Perhaps you or your clients have received a negative, 1-star review. Or hopefully, you are being proactive and want to get more 5-star reviews.

Either way, it comes down to the same idea— You understand reviews and appreciate the power and influence they wield over marketing results, sales, and profitability.

The 1-Star Review Calculation

Speaking of profitability, good and bad reviews are going to trigger opposite results for your bottom line. However, I want to help you measure how much a single 1-star review can affect your profitability.

Here is the equation, so let’s do a little math:

(LC + RC) x CLV x 12 = Cost of a 1-Star Review

  1. Could a 1-star review deter prospects from doing business with you? Of course, but unless you’re a fortune teller, there’s no precise way to know how many. This is why you’ll have to estimate the number of lost customers (LC) over a month (or week or day) as a result of a negative review.
  2. Now we need to consider the number of referred customers (RC) that you would have received from your lost customers. How many referrals does your average customer give you? Studies show this number can range between 0.9 and 2.7, but your number may vary. Multiply this number by your LC to arrive at your RC.
  3. Next up is your customer lifetime value (CLV). This important marketing metric is a prediction of the value you will obtain from your entire relationship with a customer, not just a single transaction. For a simplified way to calculate your CLV, divide your annual revenue (AR) by the number of paying customers (PC). If they are a paying customer for more than a year, then multiply that by the average number of years (Y) they are your customer.
  4. Multiply the total thus far by 12 (or 52 or 365, based on the timeframe you used to calculate LC). This will reveal how much a 1-star review may cost your company in terms of revenue over the course of a year.

If you’re like most of the people I do this exercise with, unfortunately it’s a large and painful number, especially if you have multiple 1-star reviews.

The bad news? This is only half of the equation because, as you’ll read next, you are also missing out on the added benefit of 5-star reviews.

Reputation

All else being equal, who would you choose?

  • ABC Company – 173 reviews, 4.7-star rating
  • XYZ Company – 178 reviews, 3.8-star rating

Of course, ABC Company gets the nod here. How about this one?

  • Easy Inc. – 245 reviews, 4.6-star rating
  • Simple Inc. – 49 reviews, 4.6-star rating

When pitted against your competitors, your reputation is going to be a deciding factor with prospective customers.

Branded Search Results

When was the last time you Googled your company?

No matter how prospects first heard about you, chances are they’re going to Google your company and see what you’re all about. If what they see scares them off, there’s no telling how many customers you’re losing.

Pay close attention to search listings with embedded star ratings. As long as they’re 5-stars, you’re good to go.

Local Search AnalysisGoogle Rankings

A few years ago I studied thousands and thousands of Google search results to learn exactly how reviews influence rankings.

To sum it up, the more 5-star reviews you have and the higher your rating, the better you’ll rank on Google (and likely other directories such as Yelp, Facebook, Avvo, etc.).

Of course, better visibility in search results means more new customers, the number of which you’ll only realize if you experience and track this level of visibility.

So what can you do about it?

Besides signing up for RevenueJump (wink, wink), here are three things you can do:

  1. Do your absolute best at exceeding customer expectations.
  2. Ask for reviews in a manner that’s ultra-convenient for your customers.
  3. Catch the Negative Nancys before they blabber their sour opinion online.

Do these three things and you stand to significantly improve your revenue. Afterall, that’s what your business is for, right?

Thanks for reading,

Brodie

 

Brodie Tyler

About Brodie Tyler

Brodie Tyler is an experienced speaker, published author, innovative entrepreneur, and digital marketing expert since 2000. When he's not working, he's probably hanging out with his wife and four kids.

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