Consumers overwhelmingly trust online reviews when making purchasing decisions. This statement is just as true for retail behemoths like Amazon as it is for small businesses like restaurants and auto dealerships. Unfortunately, consumers may be placing too much trust in a system that is easily manipulated by fake reviews, and this can have devastating consequences for your business’s bottom line.

Lost Sales Revenue

Consumers trust online reviews more than ever before. In fact, four out of five customers won’t buy from companies with negative reviews. But despite sites like Amazon cracking down on fraudulent feedback, 65% of reviews may be fake. Whether false reviews positively boost a competitor’s products, or target your own business with complaints, the result is lost revenue.

These facts are terrifying to small business owners. Whether negative complaints are rooted in legitimate grievances or totally fabricated, they will carry the same weight with customers who aren’t able to discern the difference. While most of us understand that mistakes happen and are willing to overlook a few blemishes, repeated negative reviews will drive your customers away.

The actual costs of a bad business reputation are obviously difficult to pinpoint, but estimates exceed $500 billion in the United States alone. Here’s how the math breaks down by segment:

A number of that magnitude is shocking and illustrates how widespread the problem is, but what does it really mean for small businesses?

Restaurants — According to a Harvard Business School study, a 1-star increase in Yelp rating leads to a 5-9 percent increase in revenue. The study further states that the difference in revenue between a 3-star and a 5-star rating can be as high as 18%. This suggests that a restaurant with $1 million in annual revenue may be losing as much as $180,000 every year because of a negative reputation.

House Cleaning Services — The professional cleaning industry also struggles with reputation issues spawning from mistrust, perceived lack of quality, and poor reviews from angry clients. If a new customer reads an online review accusing your employees of theft, they’ll be more likely to assume a misplaced items was stolen—firing you and leaving a bad review. Most review sites won’t allow consumers to delete or alter reviews even if they realize their mistake. With an industry churn rate of 55% and CAC about 9 times higher than customer retention costs, you’ll be spending much more on marketing than you would with a strong online reputation.

Hotels — Hospitality pricing has always been fluid, but now we’re seeing companies adjust rates based upon their reputation. IDeaS Revenue Solutions uses social media to track hotel reputations and makes recommendations for setting their best available rates. Further, according to hosptitalitynet, a 1% increase in a hotel’s reputation score can lead to a 6.9% increase in ADR.

Product Sales — Using the previously mentioned statistic that four out of five customers won’t buy from companies with negative reviews, you can quantify the impact on your own business. For example, let’s assume you sell five $30 products each day. If you lose four of these sales, you’ll miss out on $120 in sales daily, which would result in up to $43,800 in lost sales per year.

Auto Dealers — As many as 9 out of 10 car buyers start their search online, and 59% of them choose a dealership based on reputation. On average, dealerships sold about 1,045 new vehicles and earned approximately $2,100 per vehicle last year. These sales brought in nearly $2.2 million in profits per dealer. But if your company lost half its sales because of bad reviews, your revenue would have been slashed by $1.1 million.

Bad Press Impacts Hiring & Retention Costs

Sales revenue isn’t the only casualty of a negative online reputation. Bad press can also impact hiring costs and cause an employee retention crisis. According to a CareerBuilder survey, 71% of U.S. workers (which even included unemployed people) will not apply to a company with negative press. This can be a serious chicken and egg problem if bad employees are causing your reputation woes and your bad reputation prevents you from hiring good employees.

Sometimes negative press isn’t a gradual systemic problem, or even one that’s rooted in reviews. A CEO’s reputation is tied to the entire company. So a poorly worded social post could result in brand boycotts and employee turnover at every level, including management.

In some cases, you may be able to retain managers, but doing so could cost you as much as 21% more in salaries. What about the employees you can’t convince to stay? A CAP study found that it would cost 20% of an employee’s annual salary to replace midrange positions (earning $30,000 to $50,000 a year).

Six Ways to Protect Your Reputation from a Bad Reviews

Negative (or fake) reviews often take a business by surprise, but planning ahead can help you recover more quickly. A thorough crisis management strategy can help you recover more quickly when negative press threatens your company’s reputation. Here are the top six actionable steps from our complete guide to protect your business from the costs of a bad reputation:

  • Stop bad reviews before they happen — Listen to your customers and give them an easy way to provide critical feedback before they take their grievances online.
  • Ask for reviews from happy customers — If you have happy customers, ask them to give you a review. There are many platforms that can help you solicit positive reviews, and these counterbalance or suppress negative feedback. Once you’ve earned positive feedback, share it on your social profiles and your website.
  • Stay vigilant — Sign up for Google alerts or other brand monitoring tools. If a customer posts a critical review, don’t wait to try to make things right.
  • Claim your social profiles — Determine which social media profiles make sense for your business and regularly publish updates on them to expand your digital footprint.
  • Submit & optimize press releases — A well-crafted and optimized press release discussing anything positive associated with your company, like sponsorships or charities, can gain traction with local media.
  • Respond to bad reviews professionally — A bitter reply to a legitimate complaint can actually cause more damage to your reputation than the original criticism. Reply to all negative reviews with the reader in mind. Express regret, offer to fix the problem, and be understanding of the customer’s situation. Most people are willing to overlook a few bad reviews if you show a willingness to correct the issue.

Negative reviews aren’t just an annoyance, they’re a drain on your company’s profits. It’s often difficult to admit wrongdoing — especially if it’s the customer’s fault. But it may actually be cheaper to apologize and offer a refund than to fight it out in a public forum.

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