Relationship Capital: The Sum of All Relationships [Part 2 of 3 Part Series]

In this article, I’ll discuss relationships in the context of a business.

In 2004, Wharton professor, David Reibstein claimed that more than 50% of the value of the Fortune 500 was made up of intangible assets.

These intangible assets consist of brand value, proprietary systems and processes, intellectual property, and relationships. It makes sense for a business to focus on building each of these.

All of these are interlinked to some extent. Today let’s focus on relationship capital.

Relationship Capital

Relationship Capital is the sum of all of the relationships of all people within an organization.

These relationships become more complex with the size of the organization.

In a small organization, the relationship capital is made up of relationship with your customers, founders, employees, and partners (including freelancers and those who refer business to you).

In large organizations, it includes all the above, plus influencers, journalists, investors, bankers, and relationships among different functions within the company.

How High Relationship Capital Helps A Business

# You acquire new business at a low cost because the cost of selling to a new customer is 4-7 times than selling to an existing customer.

# You get better margins because buyers trust you to offer a fair price. And you can offer a fair price which does not mean cheap price.

# Upsells and cross-sells become easier because you’ll know it when the customer is in the market for a new product.

# You get more referrals and word of mouth that help build the brand value and trust for the brand.

# When your employees have a good relationship with your customers they enjoy working more. It has an effect on culture and happiness at work. This is another productivity and revenue booster.

# You increase customer retention which is more important than we think. Research that calculated the value of customers of leading consumer brands, valued a single BMW customer at a hefty $143,500, through several purchases over a lifetime. You can calculate a similar value for your business.

David Reibstein who I mentioned, in the beginning, used a sensitivity analysis to illustrate that an improvement in customer retention rates from 60% in 70% has a more favorable impact on revenues than chopping the cost of capital from 16% to 10%.

Now we know how important relationship capital is. Now let’s take a look at how to build it.

Here Is How You Can Build Relationship Capital

#1 Start The Relationship Based On Merit

There should be win-win otherwise the relationship will not last long. This is especially true for service-based businesses. Gone are the days when making abstract promises could make you successful.

We are living in the age of data so offer something concrete to your customers. You are more likely to succeed today if you start the relationship with documented processes and outcomes. Include expectations on both sides there.

#2 Find A Common Point Of Connection Between Two Nodes

If you are one node in a relationship and the customer is another node then make sure that you find a common point or liking between you two. In a larger relationship like in enterprise, there will be multiple nodes at work. In this case, make sure that everyone on the team finds this common point of connection with their counterpart. This also builds likeability and people buy from those they like, all other things being equal.

#3 Don’t Take The Relationship For Granted

When a relationship gets old, parties that are involved tend to get lazy or careless. In the business context, laziness will mean slower response times or lack of communication. Avoid this at all times. It is tough to act like you are on the first date when you’ve been married for two years. But trying won’t hurt. Surprise your customers once in a while. Offer value in multiples of what you are getting and always be prompt in responding to customer queries.

#4 Become Friends With Your Customers

I believe in this but don’t practice it because it is not aligned with my ethos. Anyways I have seen it work. When your customers are also your friends it is tough to lose them.

#5 Take Relationship Outside the Confines of Work and Workspace

Find opportunities to meet with or hang out with your customers over a sport that they love and your company can host. You can go with them, to the same conferences and business events they are attending.

You can even interview them for your podcast or offer them passes to an event where you are speaking.

#6 Don’t Do Everything For Money

Help your customers even when you don’t make money. Connect them with those who can help them or with personal situations if you can.

#7 Make Sure That You Are Attractive At All Times

A business is attractive to a customer when the people who make the business are in the know. They are on top of what is going on in the industry. When they constantly work to keep their products and services up to date and relevant to the needs of the customers.

Relationships In Personal Life

You can apply some of these ideas to build relationship capital in personal life too.

The rules remain the same.

You create strong relationships by investing in a relationship through time, love and care.

You build relationship capital by,

  • Giving without worrying about what you’ll get in return
  • Listening with intent
  • Being there when people need you

You can be methodical about it by,

  • Spending device-free time with those who matter
  • Offering your expertise to your loved ones before you do it for the world
  • Scheduling time to help people outside your inner circle

I’d love to hear your thoughts.

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