The “Ultimate Question” that can Double Your Company’s Growth Rate

A recent press release from Toronto-based Doxim Inc., a provider of content management services to financial companies, did not report the firm’s quarterly earnings. It did not mention a new service roll-out or announce a major personnel change. It didn’t define an acquisition target or respond to any sort of industry rumor.

Rather, the one-page release trumpeted, “Doxim Completes 2011 with Record Net Promoter Score of 63%.”

Scratching your head? Don’t feel bad. One of the cardinal rules of public relations is that clarity trumps all. You need to write headlines that will make immediate sense to a reader. But maybe we should cut Doxim some slack. The company’s 63% score means they’re doing a lot of things right.

Net Promoter Score

So what’s a Net Promoter Score? In a nutshell, the Net Promoter Score (NPS) measures the strength or loyalty of a company’s relationships with its customers. Strong relationships, the philosophy goes, lead to “good profits” and sustainable growth.

NPS was developed by management consultant Fred Reichheld of Bain & Company in partnership with Satmetrix, a provider of cloud-based customer relationship programming. Reichheld introduced NPS in a 2003 Harvard Business Review article, then explained the concept in much greater detail in his book, The Ultimate Question: Driving Good Profits and True Growth (Harvard Business School Press, 2006).

Here’s how it works: NPS is derived from the answer customers give to a single question. On a 0 to 10 rating scale – where 10 is “extremely likely” and 0 is “not at all likely – how likely would you be to recommend this company to a colleague?

Based on their responses, customers are categorized into one of three groups:

  • Promoters (9–10 rating)
  • Passives (7–8 rating)
  • Detractors (0–6 rating)

After the responses are categorized, the percentage of Detractors is subtracted from the percentage of Promoters to obtain a Net Promoter Score (NPS). Passives could improve to Promoter status if given better service or product offerings, but they don’t figure into this NPS calculation. A score could be as low as -100 (all customers are detractors) and as high as +100 (every customer is a promoter).

Positive scores are desirable, with anything above +50 considered excellent. Doxim’s press release went on to state that the company’s 63% “places Doxim among some of the best performing companies on the planet.” Heavy hitters in the NPS universe include Apple (72%), Amazon (70%) and Southwest Airlines (59%).

Example:

Sample Size = 145 Customers
Promoters = 94 (65%)
Passives = 28 (19%)
Detractors = 23 (16%)

Net Promoter Score = 65 – 16 = +49

Obviously, it’s important to find out why respondents give you the scores they do. So customers are encouraged to follow-up with whatever explanation they might add in order to support their scores.

What’s the payoff?

You might say that this is all very interesting, but with hundreds of priorities clamoring for your attention, why bother with NPS? Where’s the payoff?

Believe it or not, Reichheld’s analysis claims that achieving a strong NPS score can be very beneficial to your company’s growth prospects. Specifically, increasing your NPS by just 12 points versus your competitors’ scores, will, on average, double your company’s growth rate. So if revenue’s been growing at an 8% clip, pushing your NPS by a dozen points could have you enjoying 16% growth this time next year.

“Bad Profits”

Reichheld claims that a low Net Provider Score can be traced to a company’s dependence on “bad profits.” Bad profits are those that are earned at the expense of a customer relationship. Bad profits happen when a customer is misled, manipulated, over-charged, coerced, or otherwise mistreated.

Bad profits can come from confusing or misleading pricing or from sales reps pushing inappropriate products onto trusting customers. Bad profits can occur when a good customer feels duped because he didn’t read the fine print. Bad profits occur anytime a company is extracting value from the customer instead of creating value for him.

Examples of bad profits are easy to find. The cheap plane ticket that ends up costing you more because of the $100 baggage fee. The hidden charges in mutual fund transactions. The $9 popcorn and $7 sodas at the movie theater. These are all examples of winning a battle but losing a war, and the kinds of activities that lead to a low NPS.

Companies that take their NPS scores seriously know that mistreated customers become detractors and will usually buy less, switch to a competitor when possible, and tell others about their experiences. This is particularly troubling in the Internet era, where negative information is almost impossible to refute.

Getting to a Higher NPS

Even if you don’t formally measure NPS, the practices your company puts in play each day have your customers forming opinions based on how they’re treated. It’s important to make sure managers and employees understand the potential long-term impact of each customer encounter.

Tips for implementing an effective NPS program will be part of a future post. But for now, take a hard look at how you are perceived by your customers. And steer clear of practices that bring in “bad profits.”

Let MP Star Financial’s invoice factoring services help with your cash flow concerns. Why wait 30 to 45 days for payment? MP Star Financial can get funds to your account faster. Call MP Star Financial for more information at (800) 833-3765, extension 150.

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