What For-profit Businesses Can Teach Nonprofits About Customer Satisfaction

Many nonprofit organizations have difficulty understanding the benefits of satisfying their customers.

Nonprofit organizations differentiate themselves from traditional businesses by their profit focus. Of course, businesses are customer-focused—they exist to make money from their customers. Nonprofits believe they exist to fulfill a mission and vision and to meet every stakeholder’s needs. All too often fulfilling the mission becomes a self-fulfilling prophecy that distracts nonprofits from meeting the needs of their customers. Confusing myriad stakeholders, such as employees and suppliers, with customers, nonprofits can become internally focused, dedicating themselves to costly initiatives that consume organizational resources but do not improve customer satisfaction.

Nowhere is this more evident than in one of the largest nonprofit enterprises worldwide, the U.S. K-12 public school system. The superintendent of an underperforming school district told me the district’s strategy was based on key initiatives, such as “data-driven decision-making” and “aligning cultural values.” The former initiative led millions of dollars to be dedicated to data management systems, and the latter led to extensive training and countless culture-building exercises. Proud of its investments, the district leadership remained puzzled as to why its customers—students and parents—were leaving the district for private, charter and home-schooling options.

We conducted a district-wide study to measure the state of parent satisfaction in the district. It revealed low parent satisfaction driven by low academic standards, perceptions of unsafe schools and perceived lack of parent engagement. When asked about the disconnect, the superintendent responded, “Of course we care about parents. That is why we are completely focused on data-driven decision-making and cultural alignment. These initiatives reinforce our mission to become the best school district possible.” 

What’s causing the disconnect? The school district started with its mission, not with the needs of its customers. This systematically subordinated the customers’ needs to the mission, values and vision of internal stakeholders—teachers, staff and administrators. Though all the stakeholders claimed to care about customers, they were really driven by an inward-looking approach. As a result, the district invested more in internal initiatives that did little to satisfy customer needs. Dissatisfied, the customers migrated to other providers. This migration only dampened the morale among front-line employees, with the district declaring an intensifying need for cultural alignment. The downward spiral of lowered customer satisfaction, followed by the launch of internally focused initiatives, continued unabated, even as a growing number of students and parents sought to explore other options.

The way out of this spiral involves embracing lessons learned from successful businesses.

Define Your Customer, Unambiguously

Strong organizations are customer-focused. They do not confuse their customers with other stakeholders—even as they recognize the importance of other stakeholders in satisfying customer needs. While it is fashionable to lump all stakeholders in the same bucket and treat them as customers, it is strategically dysfunctional to equate customers with other stakeholders.

Consider a nonprofit such as a hospital. Nurses, physicians, pharmacists, administrators and suppliers are a hospital’s stakeholders. Its customers include patients and their families. Most stakeholders are a component of the value chain that should satisfy customer needs. Every nonprofit should ask itself: “Mission aside, whose needs does the nonprofit organization exist to serve?” Hospitals exist to serve patients, not physicians or nurses. Schools exist to serve students and their parents, not staff and administration.

Start by Satisfying Customer Needs

Satisfying customers’ needs should be the starting point for conceptualizing any nonprofit organization, not a distant byproduct of activities, processes and initiatives.

Profit-oriented businesses are much better at starting with their customers’ needs. Walmart understands the importance of satisfying its customers through low prices, convenience and variety. Amazon starts with the premise that it is critical to satisfy its customers through convenience and competitive pricing. Apple satisfies its customers through innovative products, online engagement and unparalleled service. For these businesses, the linkage of customer satisfaction with sales, profits and shareholder value is clear.

Nonprofits have a harder time understanding the benefits of satisfying their customers, but they should not. A strong body of evidence shows that patient satisfaction is associated with increased compliance, better clinical outcomes and improved patient health. In education, our research shows higher parent satisfaction is associated with improved academic performance, lower dropout rate and higher student retention. These nonfinancial outcomes are critical to the survival of nonprofits, and they are driven by customer satisfaction.

Identify Satisfaction Drivers

Smart businesses have a clear understanding of their satisfaction drivers. Walmart, for example, understands that overall customer satisfaction is based on low prices, convenience and variety. Many nonprofits have very little, if any, insight into the drivers of their customers’ overall satisfaction. Hospitals may not understand the relative weight of the check-in process, physician interaction, nursing support or the cleanliness of facilities as drivers of overall patient satisfaction. Public schools may not know the relative importance of family engagement, safety, academics, extracurricular activities, school leadership, teachers and academic standards.

Nonprofits should identify the drivers of overall customer satisfaction and ascertain their relative importance to achieve high levels of customer satisfaction. The process of identifying satisfaction drivers cannot be accomplished by ad hoc engagement initiatives, focus groups or one-off surveys. Rather, it entails a structured and systematic survey process to listen to the customer’s voice and measure overall satisfaction, satisfaction drivers and customer loyalty.

To illustrate this process, my colleagues at Rice University and Texas A&M University conducted a nationally representative study of more than 7,000 parents of schoolchildren to measure overall satisfaction and its drivers. Overall satisfaction was found to be unambiguously associated with student retention, academic performance and attendance. Overall satisfaction with schools was found to be driven by family and community engagement, school safety and academics. Interestingly, extracurricular activities did not drive overall satisfaction.

These results suggest public schools need to focus on family and community engagement, followed by safety and academics to improve satisfaction. The study identified several levers for improving family and community engagement, including creating opportunities for parents to be involved in school activities and give input on important school policies, as well as communicating with parents.

What Now?

Nonprofits that start with the fundamental premise of satisfying their customers’ needs will also prioritize initiatives that support a customer focus. Their planning process will provide concrete guidance for a customer-based execution and strategy that clearly measures customer satisfaction, identifies satisfaction drivers and provides a roadmap for achieving meaningful outcomes on the customer’s behalf. For such an enlightened nonprofit, customer satisfaction serves as the focal metric that singularly advances the cause of customers while also aligning other stakeholders.