How Your Business’s Online Reputation Can Impact Its Value

If you plan to sell your company in the future, it is important to consider all aspects of how your business is valued. Your business’s online reputation is one relevant factor you shouldn’t ignore. 

In this article, we discuss:

• How your business’s online reputation can impact its value
• Key steps you can take to manage your brand’s reputation and increase your business’s value
• Why it’s important to never neglect your business’s online reputation

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Online Reputation and Your Company’s Value

To understand how online reputation affects business value you must first understand how value is calculated. In this section, we discuss the fundamentals of business value. Then we take a look at how your online reputation can help or hinder your company. 

The SDE multiple method of business valuation

The most commonly used method of online business valuation is the SDE multiple method. SDE stands for seller’s discretionary earnings. With the SDE multiple method, the value of your company = SDE x the multiple. 

SDE is similar to income, but it is not exactly the same. It is your income or profits before taking into account certain discretionary expenses or income. This includes:

• Taxes
• Owner’s benefit
• Noncash expenses
• One-time investments
• Interest expenses

SDE does a better job than income of describing the true money-generating potential of a specific business. As such, it is a better metric to compare two or more businesses to each other. 

SDE can be calculated by referencing your company’s profit and loss statement and then adding back all allowable expenses. Given the importance of creating an accurate SDE figure, it is helpful to work with a qualified business Advisor when conducting your valuation.

The multiple and Four Pillars of Value

SDE does not tell the whole story about the value of a company. As you can imagine, there may be two similar businesses with identical SDE figures but very different valuations. This discrepancy is captured by the multiple. 

The multiple is a way to measure the many objective and subjective aspects of a business that go into determining its overall value. While there are many different potential factors, they can often be grouped into four main categories known as the Four Pillars of Value. These include:

• Growth
• Risk
• Transferability
• Documentation

Put simply, each pillar helps determine the overall value of your company. Strong past, current, and future growth increases the value of your business. The more risk your business entails, the less valuable it will be. The easier it is to successfully transfer your business to a new owner, the more valuable it will be. And clear and orderly documentation of your business finances and operations drives up the value of your company. 

Now that you have an understanding of the valuation process, it is easier to see how your online reputation can impact the value of your company. Your reputation can impact the value of your business by either affecting SDE or one of the Four Pillars of Value. 

Online reputation and how it can impact your business

Your online reputation is the collective perception of your business by the public or your potential customers. It is formed over time by a variety of factors, from reviews to brand mentions on social media, but it can be damaged quickly as a result of negative attention.

Your online reputation is crucial for building customer trust. As more customers begin to trust your business, they will form a positive impression of your brand. Trust and positive brand perception can have a dramatic effect on the overall value of your business. 

For starters, trust and positive brand perception will make it much easier for you to gain new customers. If a potential customer has a positive impression of your business, they will be much more likely to buy your product or sign up for your service than if they had a negative impression of your business. 

A customer who views your business favorably will be much more likely to make additional purchases down the road. They may also be more likely to maintain their service subscription for longer. As such, be sure to consider your online reputation management as part of any growth strategy.

While your online reputation may seem like a hard-to-measure concept, it can have a dramatic impact on your bottom line. Creating new customers and increasing loyalty in your established customer base will serve to drive up your revenue, likely increasing your SDE. This increase in income will also bode well for your growth prospects, further increasing the value of your company. 

In addition, running a business with a negative reputation can negatively impact your own personal reputation. If your friends, colleagues, or family members recognize that your business does wrong by your customers or community, they may lose some respect for you as an individual.

“Your online reputation is the collective perception of your business by the public or your potential customers.”

Reputation and risk

Your online reputation also plays a role in the relative risk of your company as it is perceived by a potential buyer. If you have a stellar reputation, a buyer will view your company as less risky compared to a business that has a tarnished online reputation. This will work to increase the value of your business, putting more money in your pocket once you do successfully sell it.

Furthermore, a stellar reputation assures the buyer that your company sells quality products and has a solid customer service process. They know once they take over ownership they are less likely to encounter angry customers or even deal with legal issues as a result of a bad reputation.

When identifying and mitigating areas of risk within your business, make sure that you consider how your business’s reputation plays into the situation. 

In the next sections, we discuss how your reputation can be damaged as well as what you can do in terms of online reputation management in order to improve how customers perceive your business. 

How Your Online Reputation Can Be Damaged

Customers form opinions about your company in a number of ways. As such, it makes sense that your online reputation can be damaged in several ways too. These include:

• Bad reviews
• Bad press
• Negative social media attention

Bad reviews

According to some studies, up to 92 percent of people read online reviews to learn about a business. 80 percent of consumers say they’ve changed their mind about making a purchase because of reviews. In addition, 67 percent of consumers said they wouldn’t buy from a business if they have 1–3 bad reviews. 

As you can tell, reviews and public customer feedback play a huge role in consumers’ opinion of a business and thus their purchasing decision. If your business receives negative reviews, you will see a decline in your bottom line.

In fact, star ratings are the number one factor used to judge a business. Ninety-four percent of consumers would use a business with four out of five stars. However, the number drops to 57 percent for three out of five-star businesses. It drops further to just 14 percent with an average rating of two out of five stars. 

“According to some studies, up to 92 percent of people read online reviews to learn about a business. 80 percent of consumers say they’ve changed their mind about making a purchase because of reviews.”

Bad press

Bad press can cause significant reputational damage to your business. Critical news articles about your business is the classic example of bad press, whether they be about faulty or unsafe products or dodgy business practices. If enough customers read these articles, your reputation will suffer and your business will be negatively impacted accordingly.

However, this is less likely to happen to small- or medium-sized businesses. In addition, if you sell a quality product that you can stand behind and implement responsible customer service practices, your chance of receiving bad press decreases further. 

Negative social media attention

Social media is another popular and growing method customers use to research a company they are considering buying from. In fact, 80 percent of customers get advice about buying products from social media. Thirty-nine percent of Facebook users “like” brand pages so they can research products. 

Like bad press, negative social media attention can damage your online reputation. This may occur if one or more individuals have negative experiences with your products. Again, however, this is less likely to happen to small- or medium-sized businesses. 

In the next section, we explore how you can utilize social media through brand mentions and other strategies to boost your reputation in order to increase the value of your business. 

Managing Your Online Reputation to Increase the Value of Your Company

Fortunately, there are a number of things you can do to proactively manage your online reputation in order to create more favorable outcomes. Business reputation management, or online reputation management, is an important role for any entrepreneur.  

Sell high-quality products

It may be self-evident, but you can help to create a good reputation by selling products or services that customers find truly valuable. This will keep your customers happy, generate positive reviews, and reduce the likelihood that a disgruntled customer will damage your reputation.

Implement stellar customer service practices

If a customer does have a bad experience with your product or service and reaches out to your company, be sure to have a system in place to deal with their concern in a timely manner. Customer service can go a long way in turning a disgruntled customer into a satisfied one. This can help you develop a good business reputation.  

If you haven’t already, take some time to create a responsive customer service system. If you are just starting your business, you may need to handle your customer service on your own. As your business grows, you can create a customer service team in order to automate your brand reputation management. 

“Customer service can go a long way in turning a disgruntled customer into a satisfied one.”

Respond to all reviews

As a business owner, responding to customer reviews is an excellent way to connect with your customers and address concerns if they arise. Be sure to respond to positive feedback as well as negative reviews. 

For example, let’s say a customer leaves a negative review describing a defect in your product. If this happens, respond quickly to their concerns. If appropriate, initiate a solution through your customer service department to address the issue. 

Since the bad review and your response is public, other potential customers will see and take note of the interaction. By creating thoughtful responses and taking action where necessary, you can help create a positive perception of how your company does business. 

Given that more recent reviews are weighted more heavily by potential customers, it is important to stay consistent with your response and follow-up efforts. Again, this task may fall on your shoulders initially. As your company grows, you can outsource this task to your dedicated customer service team.

Develop a social media strategy to improve your reputation

Social media should already be a part of your digital marketing efforts to grow your brand awareness and reach new customers. It is also a powerful tool to build your company’s reputation. 

First and foremost, you can use your own social media accounts to tell the story of your company, highlight your products, and otherwise build your brand’s reputation and online presence. 

You can also hire influencers to share your products with their own followers. This helps to spread your brand to new potential customers. In addition, by choosing well-respected and authoritative influencers, their endorsement of your brand can help to create a positive perception of your company and products. 

Lastly, social media is a great way to connect personally with your audience and customers. This may include sharing relevant stories that highlight your brand, commenting on their photos, responding to comments, or responding to direct messages. 

Issue press releases if necessary

Press releases can be helpful to address negative coverage by media outlets, social media, or other serious claims about your business or your product. By issuing a press release, you can offer your side of the story, notify the public if you are taking corrective action, and clarify your values. 

Be consistent

When it comes to developing and protecting your online reputation, consistency is key. This means your message and tone should be cohesive across platforms as you seek to build your brand. 

In addition, you should be consistent in your efforts to create your brand reputation and to protect your image or respond to negative attention. This could include responding to reviews in a timely manner, regularly posting on social media, and consistently interacting with your customers throughout your channels. There are a variety of reputation management software tools available to help. 

How Neglecting Your Online Reputation Can Reduce Business Value

Many entrepreneurs wonder how online reputation affects income. While it may be somewhat hard to quantify, it is no secret that a stellar reputation can only help you sell more products. On the other hand, a damaged reputation can have a severe negative impact on your bottom line. 

Reduced sales

As we have seen, the lower your product’s rating is, the fewer customers you will have who will be willing to buy your product. A drop from four out of five stars to three out of five stars drastically shrinks the number of potential customers available to you. If you have a two out of five-star rating, only 14 percent of potential customers would consider buying your products. 

This naturally leads to a reduction in your sales. Furthermore, if you suffer reputational damage on social media or from negative press, your sales will suffer further as you struggle to gain new customers. At the same time, your customer loyalty will decline drastically, reducing repeat business. 

Increased hiring costs

A negative online reputation can also reduce your income by adding to your hiring costs. Eighty-four percent of employees would leave their current company for a different company with an excellent reputation. This added hiring difficulty can increase your overall costs, reducing your income in the process. 

Conclusion

Taking a proactive approach to managing your online reputation can help you build customer trust, mitigate unfavorable attention, and work to maximize the value of your business in the long term.