The latest news from GuildQuality.

GuildQuality collects a LOT of customer feedback. Lately, we’ve been interviewing around a hundred homeowners a day about their experience with one of our builders, remodelers, or real estate developers. We deliver that survey feedback, in real-time, to our members in a consistent, actionable, and succinct format. As a big added bonus, we also give them easy-to-use analytical tools to help them track things like the performance of their employees or their company’s performance in contrast with a highly-relevant group of peers.

Our mission is to elevate the building industry to a stature commensurate with its importance in our communities. There’s not many jobs that are more important than that of a homebuilder, remodeler, or developer. These are the folks that are shaping our built environment. They significantly influence both the way we live our lives today, and how we’ll live them for many decades (or even centuries) to come.

Given the importance of the building profession, I was pleased to see a significant trend emerge from a research project we’ve been working on. With the help of 15 remodelers and Remodelers Advantage, we’ve been able to make some judgments about the correlation between customer satisfaction and profitability.

We were trying to assess whether or not customer satisfaction impacted gross margin. Here’s what we found:

1) When the remodeler earned the customer’s recommendation, gross margin was 11.6% higher than when the customer did not recommend the remodeler.

2) Among these fifteen remodelers (who all, by the way, do a great job already), the five with the highest ratings enjoyed average gross margins of nearly 11% higher than the five with the lowest ratings.

3) The remodelers with the highest overall ratings and gross margins also enjoyed the highest ratings in the category of “value”. Customers felt like the higher prices were well-worth the quality of service they received. Talk about a nice win-win!

4) Remodelers with very high average ratings enjoyed consistently high margins for almost all of their projects, regardless of whether or not the particular customer had a very positive or even mildly negative experience. The converse was true for those with lower average ratings: Margins among their happiest customers were consistent with their margins for their less happy folks.

5) However, when a customer was extremely unhappy, the margins suffered. I haven’t dug into it enough to figure out why, but my guess is it has a lot to do with the unavoidable costs associated with having a very frustrated customer

My big takeaway is this: Your reputation drives your margins. The quality of experience enjoyed by your customers today impacts the premium that tomorrow’s customer will pay. Also, customers are comfortable paying a premium (and a big one at that!) to work with someone who has a fantastic reputation. Your intuition may have already been whispering that to you, but these numbers shout it.

I think the top performing builders, remodelers, and developers aren’t pursuing exceptional service as a means to boost profits. Getting to know these folks pretty well, my sense it that they are passionate about service because it is the right thing to do. They are, after all, providing one of the most important services that people will ever invest in.

But even if profit is not the underlying motive, it’s certainly fun to do the math: For the remodeler with $2 million in annual sales, an 11% boost in gross margins means an extra $220,000 in gross profit. So this is a clear example of doing well by doing good.

Again, special thanks to all the remodelers who contributed their data and to Remodelers Advantage for helping us collect it.

Update: Leah Thayer expands on this at Remodeling Online.