Published: March 12, 2013 | Comments
This article originally appeared on the Genesys Blog on January 16, 2013.
The proliferation of technology in business carries with it the capability to report on an endless number of data points. Every business leader struggles with an overwhelming amount of information, trying to make sense out of the data and find the critical bits that can truly make a difference. Some of the information winds up in KPIs (Key Performance Indicators). The challenge for business leaders comes down to isolating a handful of KPIs that can function both as a barometer and muse, providing insight on a course of action based on all things known at a given moment in time.
It goes without saying that all companies know how they are doing when it comes to revenue, the income received from normal business activities. Companies that are publicly traded also track earnings per share, the amount of earnings for each share of outstanding stock. All of that makes sense to a point--how did we do and are the shareholders going to be happy? But the problem with these two metrics is that they are backward-looking measures of things that have already happened. They tell a story about how things have been, but they don’t do so well looking forward to predict how things might be tomorrow.
What About NPS?
Enter Net Promoter Score or NPS, a methodology developed by Fred Reichheld of Bain Consulting. Their research has shown that just a 5% increase in customer retention can lead to 25% to 100% growth in profits. Companies that have high customer loyalty can grow twice as fast as their competitors.
“How you treat people directly relates to financial results.” –Fred Reichheld
NPS asks customers a single question, “Based on your most recent experience, how likely is it that you would recommend us to your friends?” Traditional surveys often have too many questions and don’t add any weight to negative reactions. Because of NPS’ simple nature, evaluating feedback and responding to situations can be done timely manner. The faster you respond to customer feedback, the more they know that you care and the greater your customer retention.
NPS is comprised of three major components:
- the survey
- the score
- how your company handles the results
Start with a survey question like, “On a scale of 0-10, 10 being the highest likelihood, how likely are you to recommend us to a friend?” You can vary your phrasing, but this question works well for evaluating most companies. You can add other questions if you like, but your chances of getting a response are best if you don’t ask more than five.
Next, use a rating system to score answers: 0-10. Scores 9-10 are considered Promoters, 7-8 are Passives and 0-6 are Detractors. Subtract Detractors from Promoters to determine your Net Promoter Score. Then, examine findings to identify areas for improvement. This becomes the forward-looking strategy critical for growth and profit.
With that in mind, Revenue, EPS and NPS – three key metrics every company should track!
If you want to conduct a survey, Genesys Voice of the Customer may be a good place to start. If you want to find out more about NPS, here’s a review from Wharton on The Ultimate Question 2.0, the latest book on NPS from Fred Reichheld and Rob Markey.