What Is a Service–Profit Chain? (And How It Impacts Growth)

By Indeed Editorial Team

Published November 12, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies generally employ models and strategies to improve their business and make more profit. The service-for-profit chain describes the relationship between company employees and customers and how it can drive company growth. Understanding the service-for-profit chain model can assist you to develop effective strategies to help a company grow. In this article, we explain the service–profit chain model, describe its different elements, discuss its impact on employees and customers, and provide tips to improve the cycle.

What is the service–profit chain model?

The service–profit chain model explains the process by which employee satisfaction influences customer satisfaction. The theory states that a company is likely to improve customer experience through employee contentment since customers are usually happy when employees are happy. The underlying logic is that when employees feel fulfilled and content with their work, they tend to be more productive and do more quality work to impress customers.

In addition, customers are more likely to return and refer others when they receive quality goods and services. This high retention rate is good for business and helps companies realize increased revenue, which they may re-invest in paying employees and improving and maintaining quality service. This cycle ensures business longevity and sustainability over time. As a manager, you can adopt this model for a company to drive growth.

Related: What Is Value Chain Analysis? (And How to Conduct It)

Elements of the service–profit chain

Some of the primary elements of the service-for-profit chain model include the following:

Employee links

Company employees usually initiate this chain as their performance can directly impact customer experience. This initial link involves internal service quality among company staff, usually regarding their work environment and working conditions. Employees who have a good working environment often feel more contented with their work. This satisfaction can lead to the other steps in the chain, such as employee productivity and retention.

Generally, when employees are happy, they tend to stay longer at their current place of employment and become more productive. As a result, the employee satisfaction link is important to the cycle as it begins the process and keeps the other aspects going. Other links may then follow when you've established the employee link.

Related: What Is Porter's Value Chain? (With How-to and Components)

Customer links

The customer link represents the other half of the processes in the cycle. This link begins when a customer interacts with a company through its employees. The first link is the external value services. Here, customers are more likely to patronize a company repeatedly if they receive top-tier service from an employee. This repeat patronage then drives sales for the company.

The first link also encompasses all the goods and services that customers receive from employees and use in judging consumer satisfaction. The final link for customers is the referral and loyalty in the form of repeat business and consumer retention. Most companies aim for a positive customer experience, leading to a focus on employee satisfaction. As an employee, you can initiate the satisfaction process so that it drives the rest of the links.

Related: Primary Activities in the Value Chain (With Examples)

Revenue and profitability

Revenue and profitability are the end products of the other processes in the service-for-profit chain. When you're contented as an employee, you often create better product and service quality, leading to happier and more satisfied customers. A company may then feel the positive impact and profit from the client’s satisfaction, thus driving revenue and growth. Revenue is a company's gross amount of money from selling its products or services in a fiscal year.

Profitability refers to the funds that a company retains after attending to business costs. These factors generally drive overall growth, increasing a company's capacity to render top-quality services. In addition, more revenue tends to mean that a company has more money to give to its employees, reigniting the cycle.

Related: Horizontal vs. Vertical Markets: Definitions and Differences

Effects of the service-for-profit chain on employee engagement

As a human resource employee, you may get more engagement from other staff when you follow the service-for-profit chain. The direct effect is that you and other employees are often happier and more motivated to do good work to satisfy customers. This engagement includes developing systems to listen to personnel’s complaints and meet their needs. For instance, you may collaborate with senior management to help provide staff with necessary work tools.

You may also review working conditions and ensure a fair hourly rate and attractive compensation. Occasionally, you might introduce incentives for outstanding work to reward effort. You can also create avenues for employees to grow and advance in their careers. When other personnel feel like they're a part of a company and its progress, they're usually more proactive and productive. They also tend to produce more high-quality work when they feel connected to a company, leading to profitability.

Related: Corporate Strategies Examples (With Types and Benefits)

Effects of the service-for-profit chain on customer relationships

Creating positive customer experiences often leads to lasting and meaningful relationships. Producing good products and rendering quality services can please customers who want to replicate the experience. The customer may then develop loyalty for the brand as they make repeat purchases and refer the company to others. Businesses generally rely on good customer relationships and support to determine long-term growth and profitability. This relationship can primarily comprise your interactions with customers.

While different companies may render similar services, customers typically remember businesses that have provided them with positive experiences. For instance, as a customer care representative, you may help customers find the best skin care products for their skin type by making recommendations. Such customers are more likely to return as you save them time and show expertise and great interpersonal skills. When a company gains more money from repeat patronage, it can invest it back in employees either through increased remuneration or improved working conditions.

Related: Is a Service a Product? (With Definitions and Explanations)

Tips on improving service-for-profit chain

Here are some tips you can consider in improving the service-for-profit chain:

Pay attention to employees’ feedback

It's helpful to gather and consider employees’ feedback as they start the service-for-profit chain. Managers can set monthly or quarterly employee feedback systems. They can then communicate with company executives to devise means to make changes based on the feedback. For instance, they may consider employee requests for additional resources to perform their task properly.

Attending to staff complaints helps employees to feel important and may improve the quality of their work. It also shows that the company’s management cares about them and could improve their satisfaction. Ensure that employee feedback is frequent. You can also make it anonymous so that employees feel free to express themselves. It's also useful to prioritize frontline staff, as they directly interact with clients and can influence customers' experience.

Related: What Is Employee Feedback? (Definition and Examples)

Consider customers’ feedback

Collecting customers’ feedback is useful as it helps you understand the other part of the service-for-profit chain. When you gather consumers’ feedback, you can determine how to improve a company's products and services to match their preferences. You can create systems to collect customers’ comments either physically or virtually. For instance, you may install complaint boxes or distribute feedback cards at the business's location. Alternatively, you may leave a feedback form on a company’s website or share an e-mail to collect customer comments. You may also create a survey for consumers to fill out after they complete a purchase.

When you receive constructive criticism, you could trace the cause of the issue and allocate more resources to fix it. You can also promote customer feedback to let them know that the company appreciates their comments. This strategy often makes consumers feel more important and more willing to share their thoughts while increasing their loyalty. You might also offer incentives, such as giving some percentage off the next purchase when the customer completes the feedback survey.

Related: Customer Surveys: Definitions and Example Questions

Identify the weaker link

You can improve the service-for-profit chain by finding a weaker link in the cycle. For instance, you and your team could conduct periodic reviews to assess a company's performance with each link. During these reviews, you can assess available employee resources, incentive programs, and job designs to determine the strength of a company's internal service quality link.

This assessment also helps you identify inadequacies that may affect performance. In addition, you could ask employees to rate their work conditions under an anonymous review. Then, you can assess the external services quality link by paying attention to customers’ feedback. Once you identify possible weak links, you can develop strategies to fix the issue. This periodic analysis often helps you strengthen the service-for-profit chain.

Create an employee activation program

An employee activation program is a system in which employees voluntarily share authentic content relating to their job. As part of human resource strategies, you can distribute this program to employees to attract their interest and drive enthusiasm for the company. Employees who share positive and meaningful posts about their roles and the company often feel like they’re a part of it. It may also drive employee satisfaction and improve the service-for-profit chain.

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