Reliable metric and common language: Your Net Promoter Score® is simply the percentage of promoters minus the percentage of detractors. It’s a number you can compile and track regularly, not only for a whole company but also for each business, product, store, or customer-service team. You can also track it for customer segments, geographic units or functional groups. It helps everyone focus on the twin goals of creating more promoters and fewer detractors. It is, quite simply, your customer balance sheet.
The Net Promoter System® is much more than just the score. Net Promoter System practitioners ask customers the reasons for their ratings using an unstructured, open-ended question. This provides employees throughout the organization the opportunity to hear comments from customers every day—in their own words. These leaders build that feedback into their operating systems, using it both to address customer concerns and to fuel the innovations that generate more promoters. They use this process to learn more about how they can improve their processes, people, products and pricing for the long term.
Accurate Net Promoter Scores depend on a constant flow of data. Many leading companies survey a sample of their customers every week. Frequent surveys enable you to monitor the scores for unexplained variation. They also allow you to test new approaches and tactics to see if these changes improve outcomes.
Customer value: Promoters—the loyal, enthusiastic customers who love doing business with you—are worth far more to your company than passive customers or detractors. You can quantify that difference and then use the result to assess and choose among investments in improving the customer experience. The first step is to calculate the lifetime value of your average customer. (If you’re unfamiliar with this procedure, you can learn about it here.) Using that average as a baseline, tally up the difference in lifetime value for promoters, passives and detractors. Here are the factors you’ll need to measure and take into account:
• Retention rate. Promoters generally defect at lower rates than other customers, which means that they have longer, more profitable relationships with a company.
• Annual spending and share of wallet. Promoters increase their purchases more rapidly than detractors, because they tend to consolidate their purchases with their favorite supplier. They are more interested in new offerings and brand extensions than detractors are.
• Pricing. Promoters are often less price sensitive than other customers, particularly detractors. Examine the market basket of goods or services purchased by each group over a six-to-twelve-month period and then calculate the margin on each basket. While many loyal customers expect “the best deal” you have to offer, others stay with you for reasons other than price. It’s important to know which of your promoters are price sensitive and what impact that has on your financial performance.
• Cost efficiencies. Promoters typically require less in sales, marketing and advertising costs than other customers. Moreover, their average order size is typically larger, leading to lower transaction costs per unit of revenue. They generally have fewer complaints and account for fewer credit losses. Their positive attitudes have a hard-to-quantify but important effect on boosting employee morale and productivity.
• Word of mouth. Promoters generate 80% to 90% of referrals. Quantify (by survey if necessary) the proportion of new customers who selected your firm or product because of reputation or referral, and allocate the value of those customers to promoters. Conversely, detractors account for most negative word of mouth, so allocate the cost of this drag on growth to them.
This kind of rigorous economic analysis isn’t easy, but it can help any company gauge the likely return on investments aimed at creating more promoters and fewer detractors.
In this short video, Rob Markey explains the importance of understanding the value of your top customers.