The One Number You Need To Grow
In 2003, Fred Reichheld wrote this article in the Harvard Business Review. He was dismayed by the lack of actionable data old customer satisfaction surveys provided. So Reichheld set out to find an indicator that would predict a company’s future growth and value. His theory was simple: companies who were loved by their customers (enough to get them to recommend that company to their friends and colleagues) were more likely to grow. After two years of research, Reichheld came up with the question (which he labeled, “The Ultimate Question” in his book discussing NPS) that would blossom into the NPS (Net Promoter Score):
“How likely are you to recommend this company to a friend or colleague?”
What is NPS (Net Promoter Score)?
At its most fundamental level, the NPS survey is asking your customers if they trust you.
“It’s not a metric, it’s an entire way of doing business” – Satmetrix, co-founder of NPS
NPS is a way of receiving actionable customer feedback by asking one simple question, which was mentioned above. Customers are given an 11 point scale (from 0-10) in which they could answer The Ultimate Question. The NPS template looks like this:
The customer is then asked to provide any additional insights as to why they answered how they did.
The customers’ answers are divided into three different categories with varying implications:
- Detractors – those who ranked their experience from 0 to 6.
- Provide insights on where and how to improve customer experience
- Might engage in negative word of mouth
- More price-sensitive
- Less willing to try or buy new products
- Passives – those who ranked their experience at a 7 or 8.
- Susceptible to competitors
- Promoters – those who ranked their experience at a 9 or 10.
- Provide insights on where your business is excelling
- Engage in positive word of mouth
- Less price-sensitive
- More willing to buy and try new products
- Provide the most long term value
For any visual learners:
How to find the NPS
To find the NPS of your business, a simple equation is necessary: NPS = (Promoters/ Total Customers) – (Detractors/ Total Customers).
You take the percentage of Detractors and subtract it from the percentage of Promoters.
For example, Company X had 100 people complete the NPS survey. 65 customers answered with a 9 or 10 (65/100 = 65%). 20 customers answered with a 7 or 8. And 15 customers answered with a 6 or lower (15/100 = 15%). So, Company X would subtract the 15% of Detractors from the 65% of Promoters and their NPS would be 50%. This is your business’s benchmark, which you actively try to improve.
Turning NPS into actionable data
Next, executives should attempt to discover the root cause of the answers. They do this by closing the loop, i.e. following up with customers. Since NPS is only one question, this allows all the employees to interact with the customer in a two-way conversation:
- Customer ←→ Frontline employees
- Customer ←→ Managers
- Customer ←→ Executives
Making loyalty (or trust) a top priority for each employee is the key. Executives can do this by offering incentives to employees who perform well with NPS results.
Benefits of NPS
The NPS system has five main benefits including:
- Higher retention rates (ratio of the number of retained customers to the numbers at risk)
- Indicates higher loyalty/trust
- Increased customer centricity and engagement
- Inspires employees to achieve higher scores, or, if they are bad, to leave
- Increased upsells/cross-sells
- Promoters are less price-sensitive and more likely to buy new products
- Lower cost to serve
- Promoters don’t need to be marketed to as much, if at all
- Lower marketing costs
- Promoters engage in positive word of mouth marketing
Customer Engagement & Centricity
As Daniel Pink elaborated in his book “To Sell is Human”, in today’s business world, we have shifted from a society of caveat emptor (buyer beware) to caveat venditor (seller beware). Pink’s point was simple. Back in the day, buyers had to remain skeptical of salespeople ripping them off. But now as more information is available, consumers hold all the power in business relationships.
In other words, the customers are responsible for the success of the business.
I don’t mean that customers are *literally* responsible for success, but rather that the business’s primary goal should be that of pleasing customers. Of increasing customer engagement. Of building loyalty with customers.
To do this, businesses need to step away from their crystal ball, i.e. they need to stop relying on using ESP to figure out why customers are buying from you. Instead, they need to engage in more outreach to answer that crucial question and provide actionable advice. Remember: NPS is asking your customers if they trust you.
Chick-fil-a vs McDonald’s
As you can see, in 2009, Chick-fil-a blew McDonald’s out of the water with their NPS. Both of the companies brought in roughly the same revenue. But Chick-fil-a is only open 6 days per week and had 14% fewer expenses! It seems that engaging customers by saying “my pleasure” goes a long way.
Additional stats regarding customer engagement include:
- Engaged customers deliver a 23% premium over the average customer in terms of:
- Share of wallet
- Relationship growth
- Business units with customer engagement levels in the top 25% outperform other units on:
Power of Word of Mouth
Word of mouth is one of the most successful forms of marketing. Customers are 92% more likely to buy a product if it is recommended to them by someone they know. They are 70% more likely to buy from reading positive online reviews.
Trust is the new commodity, for a recommendation of your business can ruin that Promoter’s reputation in his own community, if you fail to adequately serve the new customer. So in order to improve what customers are saying about you, you need to increase the level of trust.
The best way, to-date, to do that, is through NPS.