Do more of your customers love you than hate you? You better hope so, because that is the number one equation that points to your profitability. So say the researchers at Bain & Co:
Research conducted by Bain & Co. established that one question reliably indicates customer loyalty (as evidenced both by repurchase behavior and by referral rates) in most industries. The ultimate question: “How likely is it that you would recommend this company to a friend or colleague?” Customers who rated a company high on the “likely” scale bought more goods and services, bought them more often, gave the company a greater share of their wallet, and were more likely to talk up the company to others.
USEFUL NUMBER. We also discovered that some simple arithmetic yielded one particularly useful number. Ask customers to score your company on the “would recommend” question, using a 0-to-10 scale. Label those who give you a 9 or 10 promoters—they are the assets that drive your growth. Label those who rate you from 0 to 6 detractors—they are the liabilities that eviscerate growth. Subtract the percentage of detractors (liabilities) from the percentage of promoters (assets) and you have your net promoter score.
Tracking NPS month in and month out—by branch, division, product line, or whatever else makes sense—helps focus organizations on the basic engine for profitable growth, getting more promoters and fewer detractors.In fact, NPS correlates well with growth among competitors. In airlines, for example, no airline has had superior growth without a superior ratio of promoters to detractors. In warehouse retailing, Costco (COST ) has the highest NPS and by far the best growth. A new study of retail banking shows the same pattern, with growth rates closely matching NPS scores. The leader here is New Jersey–based Commerce Bank.
— Fred Reichheld in NPS: The Next Six Sigma?, Business Week, September 22, 2006.
So how’s your NPS? If you’ve got no idea, it might be time to ask.