You rarely see trust and return on investment in the same sentence. Until now. We provide evidence of the ROI of trust so you can better understand the significant value it delivers. We strongly encourage you to treat trust as a strategic asset, nurtured and protected at every opportunity.
Nothing sits at the intersection of our human-to-human and human-to-brand interactions like trust. It touches everything & everyone. It lies at the heart of every action, every relationship and every transaction we engage in.
Trust is the leading indicator of economic exchange. Which is to say no one will want to do business with your company unless, first, they trust you. This truism extends to customers, employees, suppliers, investors and other key stakeholder groups that you rely on. Trust is earned and must be maintained.
Trust and return on investment – implied positive relationship
Given how foundational trust is to each relationship and economic exchange, it’s entirely logical to say it has an implied positive ROI. If trust didn’t exist, neither would any of the business outcomes we routinely measure to assess performance; revenue, customer retention, cashflow, profitability, valuation, employee retention, and many other metrics that are part of our established measurement framework. In fact, trust underpins every single one of those positive outcomes and, when absent, their negative counterparts.
New and existing stakeholders literally signal if they trust by engaging in a risk-taking activity (or not). For example, this could be buying a product or service, becoming an employee or investing in a business.
It’s illogical to think trust is the essential ingredient to drive valued business outcomes, but its ROI is non-existent.
Trust and return on investment – what polls say
We’ve conducted polls, and the overwhelming majority of respondents agreed that trust is the most important factor driving business relationships (88%). We then asked why so few companies measure trust? The majority (57%) responded they didn’t think it could be measured. That is incorrect. Trustworthiness, trust and other trust-related concepts can be measured; further details are available at our website Trustgenie.
NPS doesn’t measure trust
Some companies rely on Net Promoter Score (NPS) as a surface level metric to try to predict future performance. However, NPS is a lagging indicator (based on what has happened up to that point in time) and doesn’t provide much insight about performance or what to do next.
While utilised due to its relative simplicity and ease of implementation, NPS doesn’t measure trust. It is flawed in many ways and we’ve detailed the flaws in our post HERE.
Trust and return on investment – trust is essential to profit and growth
It can be strongly argued that the ROI of trust is invariably positive because it’s essential for any investment to produce accretive value. Therefore, there is no incentive for trust to be absent. The ROI of trust is calculated using the conventional ROI equation.
ROI (%) = ((Benefit Returned – Initial Investment)/Initial Investment) x 100
Where:
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- Benefit Returned = the economic benefit generated over a defined period as a result of the Initial Investment. Examples: Increased sales revenue, reduced customer and employee churn, more referrals, etc.
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- Initial Investment = the economic cost incurred in trust building activities over a defined period to generate the economic benefit. Examples: costs associated with collecting, analysing and reporting data, training programs, monitoring systems, modifying communications, etc.
Here are a few examples of calculating ROI on trust.
Example 1
Company A has been seeking to make changes to scale its attraction of new customers over and above historical performance. After gathering data from existing customers about its trustworthiness, it identified trust related performance issues adversely impacting its reputation and growth plans.
It committed $100,000 to an initiative focused on improving its perceived trustworthiness over the next 12 months and to leverage the results to attract new customers at scale. During the ensuing 12 months it attracted 50 new customers over and above what it had expected. They generated total new revenue of $500,000.
ROI = (($500,000 – $100,000)/$100,000) x 100
ROI = 400%
Example 2
Company B has been attempting to recruit for 2 new highly specialised roles for the last 6 months, but without success. It has received fewer than expected applications in the last 3 months and, of those that had been made an offer, none had accepted. It has received consistent feedback from the recruitment firm that there was a significant question mark hanging over the company’s reputation and its perceived trustworthiness.
It committed $50,000 to an initiative to improve its perceived trustworthiness in order to attract and recruit high quality candidates. During the ensuing 4 months it attracted 5 new high-quality candidates and subsequently filled both roles. They estimated that each role would generate $400,000 in new revenue over and above their total cost of employment in the ensuing 12 months.
ROI = (($800,000 – $50,000)/$50,000) x 100
ROI = 1,500%
Example 3
Company C has identified a gradual increase in the number of employees resigning from the same business unit over the last 6 months. So far, 4 have departed and this represents a 300% increase over normal trend. Exit interviews with the departing employees suggested their former line manager was perceived as untrustworthy. This had created an environment that made it almost impossible for them to undertake their jobs. It is estimated the cycle of exit/recruit/train for each role costs the company $55,000.
It committed $35,000 to undertake an initiative to collect data from the remaining employees and put in place a program to address the problem. During the ensuing month it gathered data that confirmed the line manager was widely perceived as untrustworthy and put in place a training program. During the next 6 months, there were no further exits of employees from the business unit.
ROI = (($220,000 – $35,000)/$35,000) x 100
ROI = 529%
Summary
The key points to take from this post about trust and return on investment are:
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- Trust lies at the heart of every action, every relationship and every transaction we engage in and is the essential precursor to economic exchange.
- Trust has an implied positive ROI because it is core to the success of any investment initiative.
- New and existing stakeholders signal if they trust someone or something by engaging in a risk-taking activity (or not) and this is based on perceived trustworthiness.
- NPS does not measure trust – it measures a moment in time, post exchange sentiment.
- Trust is essential to profit and growth.
- The ROI of trust is calculated using the conventional equation: ROI (%) = ((Benefit Returned – Initial Investment)/Initial Investment) x 100
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- Trust is a strategic asset that you must be careful to nurture and protect at all times.
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What do you think?
When performed with the right intent and a high degree of execution, your company’s actions can earn trust with its stakeholder groups. Trust is a strong differentiator and a dominant driver of future business profit and growth.
We’ve made trust tangible with our Trustgenie service – helping companies measure, manage, and improve their trust performance to increase revenue, reduce costs, mitigate risks and protect reputations.
If your company is ready to make trust its superpower, Trustgenie can help.