Tales from the Wild: The Value of Quality

Quantifying the value of "quality" has been an elusive goal of the QA world for many years. You can talk about the number of bugs, technical debt, revenue loss mitigation and brand protection, but it's still difficult to put a dollar amount on these metrics.

At Applause, I've noticed that our most enthusiastic customer intrinsically understand the value of quality but can rarely quantify the investment. I hear words like "essential" and "core to our culture" but never "it's worth $xxx".

But, none the less, these clients invest heavily in quality. They are known for their quality. And like a premiere athlete, they seek out ways to get that extra edge over their competitors.

I began to wonder if this ultimately helped their bottom line. With the help of our sales operations team, I was able to identify our top 10 publicly traded customers and their lifetime spend with Applause. With the data in hand, I leveraged the market data and “Backtest Portfolio” available from www.portfoliovisualizer.com and was able to build an "Applause Index". The results were remarkable.

As shown in Figure 1, over the past 10 years, this Applause Index outperformed the Dow Jones Industrial Average (DJIA) by almost 100%. While the SPDR Dow Jones Industrial Average ETF (DIA) based portfolio went from $10,000 to $22,936, the Applause Index grew to an astounding $44,927.

I was concerned that the legendary success of our top customer may have artificially swayed the results, so I ran a version of the analysis without them and got virtually the same results. I also thought that perhaps our customers tend to be digital companies and this success could be attributed to the growth in the tech sector. To see, I added the Technology Select Sector SPDR ETF (XLK) to the mix. Figure 2 illustrates that while the tech sector did outpace the DJIA, it could not keep up the the Applause customers...even with our #1 customer taken out of the mix.

While I don't think Applause can take all of the credit for this success, I do believe it demonstrates that "quality" does have intrinsic and real value. In fact, it contributes to billions of dollars of market capitalization.

As a final experiment, I was curious to see what happened if I built a portfolio from prospects who don’t return my phone calls. While there can be any number of reasons these people don’t take/return my outreach, I tend to think it can be attributed to a culture that (a) doesn’t embrace change and (b) is dubious about the value of quality.

The results illustrated in Figure 3 are real but not surprising. The “Don’t Respond” index clearly lagged the DJIA.

None of this is scientific or definitive, but it provides an interesting observation on the real value of a dedication to quality and delighting your customers. It may also influence where I spend selling efforts going forward.