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Due Diligence and Client Satisfaction Tests

By Generational Equity

02/06/2017

To make your business “buyer ready” and enhance its saleability, the more you can reduce the risk associated with your company, the better your valuation and deal terms will be with potential buyers.

And that is what due diligence (DD) is all about. Before your deal closes, buyers will be sending you a document with 200-300 questions covering all aspects of your business, with the overall goal of helping the buyer become more comfortable with your opportunity.

One of the key areas covered in DD is the quality of your revenue sources – how solid are your relationships with your clients/customers? Are they so satisfied with your service or product that once the company changes hands, the buyers will be confident that the client base will be retained and grown in the future?

That is why conducting regular, documented surveys of your client base is so important. If you do these regularly and not only save the results but actually act upon the feedback, you will significantly help your due diligence process with any buyer.

Because of the importance of this, and realizing that many of you are daunted (and just don’t have time to create and compile the results of a 100-question survey), I thought I would share a basic client satisfaction tool that you can use, easily analyze and track without requiring hours and hours of your time.

An Easy Way to Customer Scoring

Called the “Net Promoter Score,” it consists of simply one question: On a scale of 1-10, how likely is it that you would recommend your brand to a friend or colleague?

You can do this via several methods depending on which works best for you. When you get the results back, you break them into three categories:

  • Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
  • Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
  • Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

Then you do the following calculation to determine your Net Promoter Score (NPS):

Source: The Net Promoter Network

Doing the math above, you will determine your NPS, which will be somewhere on the continuum of -100 (if every customer is a Detractor) to a high of 100 (if every customer is a Promoter). So, if your percentage of Detractors is 10% and Promoters is 20%, you have a net core of 10, meaning you have a lot of Passive clients. This gives you an opening to look at the individual results, contact your key Passives, and determine how you can move them from Passive to Promoter. The strategies you determine are, again, tremendously helpful to produce during due diligence.

This is especially the case if you conduct this survey every six months, initiate strategies to move Passives to Promoters and can demonstrate this change over time, i.e., show the buyer that your NPS was 10 in January of 2014 but increased to 55 by January of 2017.

The great thing about this survey from a buyer’s perspective is that it is easy to track, understand, and quantify. It does not require complicated algorithms and double-blind questions for validation. And most importantly it really tracks what is most important, how your Promoter base is growing.

This is, of course, just one area covered in due diligence. There are many others. If you would like to learn more about due diligence tests, follow these links:

To discover even more about how to prepare your company for buyer scrutiny, please attend a Generational Group executive conference. We hold these throughout North America, and they are completely complimentary and free from obligation. They are designed to help business owners learn how to exit for the maximum value. To find out how you can attend, please call us at 972-232-1121, or provide us with your contact information and we will be in touch.

Even if you aren’t planning on an exit for years down the road, beginning to use the Net Promoter Score can have a beneficial impact on your business.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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