Calculating the Cost of Negative Reviews

March 29 , 2018 by in Research
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I am about to tell you something you probably won’t like, and definitely don’t want to hear. And I’m about to tell you something that, if you’re like most people, you’re not going to do anything about.

Odds are, you don’t 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 doing your absolute best at perfectly exceeding customer expectations. Or…
  2. You’re not asking for reviews in a manner that’s ultra convenient for your customers. 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 restaurant. The decor is immaculate and beautiful. You’re guided the entire time by a detail-oriented and happy staff. The food is tasty 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 is bland. Not only that, but the bill is more than expected.

What are you going to do? Right, 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 RevenueJump blog post for a reason.

Perhaps you’ve recently been on the receiving end of a negative, 1-star review. Or, hopefully, you are thinking about taking preventative action to avoid 1-star reviews and obtain more positive, 5-star ratings.

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.

Negative Reviews: Calculating Value

Obviously, 1 and 5-star reviews are going to trigger opposite results. However, I want to help you measure how much they can affect your bottom line, especially 1-star reviews.

1-Star Review ValueLet’s do a little math from this perspective:

  1. Ask yourself, would a 1-star review deter a prospect from doing business with you? Of course it would, but unfortunately 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) because of this negative rating.
  2. Multiply this number of referrals this customer may have given you (RC). You can arrive at the RC this by dividing your total number of customers by the number of referrals you get over a period of time, say, a year.
  3. Multiply this number by your average customer lifetime value (CLV). Your CLV, a marketing indicator you should know, is a prediction of all the value you will obtain from your entire relationship with a customer.
  4. Multiply this amount by 12 (or 52 or 365, respectively) to reveal what a 1-star review would 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, it’s unfortunately a large and painful number.

The bad news? This is just the tip of the iceberg. When you consider the value of 5-star reviews you can reveal what you’re missing out on with a 1-star review.

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 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

In my Local Search Analysis I studied thousands of Google search results and showed how reviews influence rankings.

To sum it up, more 5-star reviews means you’ll rank higher on Google (and likely other directories such as Yelp, Trip Advisor, Avvo, etc.).

Of course, better visibility in the 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 (you saw that coming, right?), here are three things to get you started:

  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 save (and make) the amount of revenue you calculated above!

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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