What Does a Bad Business Reputation Cost?

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Jonas Sickler, ReputationManagement

It’s no surprise that a negative reputation is bad for business, but the actual price tag attached to a company’s trust is rarely calculated. While online reviews have been openly accused of fraud and manipulation, consumers continue to put an enormous amount of faith in them. This statement doesn’t just apply to retail mega stores like Amazon. It is equally important for hotels, restaurants, and roofers.

The ease of entry combined with high customer impact has created a booming business out of buying, selling, and writing fake online reviews (Almost 80 percent of us have read at least one fake review in the past year). Even if your business is offering great customer service, you could be vulnerable to a reputation attack from shady competitors.

Sales Revenue Will Fall

According to a BrightLocal survey, 93% of consumers read online reviews. A separate study found that four out of five customers won’t buy from companies with negative reviews. These are scary facts for a hard working business owner who has spent years building a trusted company only to watch its reputation spiral out of control.

Whether negative reviews are actually legitimate complaints or completely fabricated, customers may not be able to discern the difference. Most people will usually overlook a few stumbles, but repeated online criticism will drive customers away and slash you revenue.

It’s obviously impossible to determine a universal cost of a bad reputation, but one fact sheet estimates it to be more than $537 billion in the United States alone. The magnitude of that figure illustrates how common the problem is, but how does it translate to small businesses?

Hotels — Hotel pricing has always fluctuated with seasonality, but we’re now seeing social media reputation influence what some hotels are charging. While this can help businesses remain competitive, fake negative reviews can artificially drive pricing down.

Restaurants — Increasing a Yelp rating by one star leads to a 5-9 percent increase in revenue. This study by the Harvard Business School suggests an 18% difference in revenue between a 3-star and a 5-star rating. Translating this into dollars, a restaurant with $1 million in annual revenue may be losing as much as $180,000 each year due to a negative reputation.

Construction Services — Revenue for construction companies is heavily tied to word of mouth reputation. After a single customer made defamatory statements on Yelp and Angie’s List, one construction company was awarded $750,000 for lost revenue. While it isn’t recommended to file lawsuits against your customers, the example puts a hard number on the cost of a negative reputation.

Product Sales — Quantifying the impact of losing four out of 5 customers is even easier for products sales. For example, if your company sells five $30 products each day, and you lose four of these sales, you’ll miss out on $120 in sales daily. This would add up to $43,800 in lost sales annually.

Hiring & Retention Costs Will Rise

A bad online reputation will ripple through a company, affecting far more than just sales. Negative press impacts hiring costs and may even cause an employee retention crisis. According to a CareerBuilder survey, 71% of U.S. workers will not apply to a company with negative press. This situation creates a circular problem if bad employees are tarnishing your reputation and your bad reputation is preventing you from hiring better employees.

Negative press isn’t always a systemic customer service problem. It may be the result of an employee or company scandal. This can be a true crisis that will often drive away your best employees and create a talent vacuum. Even if you’re able to retain most of your employees it could cost you 21% more in salaries. It seems replacing them isn’t any cheaper according to a CAP study that found it would cost $10,000 to replace employees earning $50,000 a year—or 20% of their annual salary.

Protecting Your Reputation

Negative press can ambush unprepared companies. By drafting a thorough crisis management plan before any negative news surfaces, you can be more proactive about protecting your business’s reputation. Here are six essential steps to build a digital fortress around a business:

  • Prevent bad reviews — Customers often rant online as a last resort. Give them an easy way to voice their grievances before they take their complaints online.
  • Monitor the web — Sign up for Google alerts so you’ll be notified if a customer posts a critical review and you can move quickly to make things right. For this reason, use great website building software like B12 website builder
  • Be social — Claim the social profiles that makes sense for your business and regularly publish updates on them to expand your digital footprint.
  • Request reviews — Ask happy customers to review your company to counterbalance or suppress negative feedback. It takes 12 positive reviews to offset one negative review.
  • Submit press releases — If no one else is writing about you, do it yourself. A positive press release about a charitable donation or event can gain traction with local media.
  • Draft a crisis plan — Having a plan in place to deal with a crisis will decrease mistakes and miscommunication that could worsen an emergency.

Negative online content can cause a business to lose 80% of its sales and pay an extra 20% in salaries. Waiting until the damage has been done increases both the time and cost of recovery. Rather than thinking of great customer service as an expense, think about it as a shield. As difficult as it may be, especially when the customer is wrong, it may be cheaper to offer a refund than risk damaging your online reputation.

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