The Price of Your (Bad) Reputation

Brook Zimmatore | September 2, 2013

Back when I first started at Massive the one thing which struck me the most was the naive blindness by which people trusted Google. Google had become the new “truth”. Essentially, if Google shows it, then it has some truth to it – at least in the consumer’s eyes.

When a potential customer shops around online and finds you, your name or a product you offer, there is a 77% chance they will look into you a bit more. If this search is met with one or more negative results, you then have a 5% chance of converting that customer. That’s pretty low, and a terrible way to lose business especially when negative content can be conjured up by anyone these days.

Bad online reputation damages companies. What most don’t look at is the lost value of a bad online reputation; How much money are you really losing? Is it really possible to put a number on it?

Why You Need to Know the Value?

Before looking into the value of online reputation management, it is important to determine the value in cost for these services. This helps you determine the amount of business that you may lose due to a bad reputation. As an example, in a recent lawsuit on defamation, Dietz Development sued a reviewer for $750,000 for lost business due to reviews that were placed on sites like Angie’s List and Yelp.

As reported by Entrepreneur,

According to the Washington Post, on December 5th a judge granted a preliminary injunction, ordering Perez to refrain from making statements alleging property theft by Dietz or referring to a previous lawsuit between the parties. On recent visit to Dietz’s Yelp page, the Perez post was no longer displaying.

The sum of $750,000 was determined by quantifying the lost business from the bad review. Quantifying before-hand also helps determine the investment of paying to fix your online reputation. Legal is long and expensive but may get you considerable payment in damages. There are many companies available offering to help with this area of business for different prices. By knowing the loss value, you know whether they are worth your money.

The Amount of Clients You Could Lose Out On

One way of determining your financial value is considering the amount of clients you gained last year. This could be compared to the previous year if your online reputation stayed the same. Considering most businesses increase increase their reputation through PR or marketing, the number of clients (and the financial gain) should then increase.

To determine your maximum budget for reputation management, you would need to consider the number of clients you have likely lost. This would give you the financial value on an average. As you can see, it really does depend on the size of your business.

Defamation costs graph

This is a graph of one of Massive’s clients showing “Paid Conversions” before and after defamation. As you can see, the online defamation resulted in over 50% revenue loss.

According to MyStrategicPlan, here’s a good way to assess the lifetime value of your customers:

  • What is your average sale or average amount of money a customer spends per month? (Simply add up your total dollar sales for a year and divide that by the total number of sales transactions you completed.)
  • How many times a year does an average customer buy from you? (Take your total number of sales transactions for a year and divide it by the total number of customers.)
  • What is the expected number of years a customer will use your services or buy your products?
  • How many people per year does your average customer tell about your company? (You may have to guess at this one. It’s probably between 3 and 12. Generally, the better your customer service, the higher this number will be.)
  • What percentage of these people actually become customers? (Usually between 20% and 70%.)

Service and reputation

It is vital to work out the value of your customers. Not only will this help you work out how much you could potentially lose from customers being turned away, it will also help you determine the loss due to bad customer service, organisational problems or web-flow flaws.

Customers will often look elsewhere if they have not been treated very well by your employees or find your online services difficult or full of errors. Not only do you lose their value but also the value of anyone they could have referred—past and future.

While it is difficult to put a financial figure on bad online reputation damage as there are many causes for a drop in numbers, you can get a general idea the value of your customers and the amount you lose from negative reviews or internet defamation. So your best strategy is to react quickly to a reputation crisis to avoid considerable losses.

CEO / Co-Founder
Brook Zimmatore is the Co-Founder & CEO at Massive.