It’s been 10 years since Fred Reichheld first introduced Net Promoter Score (NPS) in his Harvard Business Review article “The One Number You Need to Grow.” Since then, thousands of companies have implemented NPS, including industry leaders like Apple, Intuit, Facebook, Southwest Airlines, and American Express. Now, with a ton of industry momentum, has NPS proven out Reichheld’s original title? Has the system shown that it can propel meaningful revenue growth?
In his latest book, The Ultimate Question 2.0, Reichheld argues yes, NPS does drive financial growth. Here is some data that Reichheld and his team have gathered over the last decade to quantify and substantiate the connection between NPS and long-term sustainable growth:
- NPS leaders tend to grow at more than twice the rate of their competitors.
- Of the nine percent of companies that have registered sustainable, profitable growth, NPS scores were, on average, 2.3 times the scores of other firms in their respective industries.1
- Apple retail store managers call detractors within 24 hours of an NPS survey submission. They then tracked the purchase patterns of detractors that had spoken with store managers vs. those that hadn’t and discovered that the former spent significantly more, resulting in more than $1,000 in additional revenue or $25 million in the first year.
- Phillips electronics tracked NPS for a sample of accounts over time and found that where NPS increased, revenue grew by 69%. Where it remained steady, revenue grew only by six percent. And where NPS declined, revenues actually decreased by24%.2
These examples of significant revenue growth require efficiencies that are achieved by effectively implementing and nurturing NPS. Focusing on your customers and their experience works to create an army of brand promoters, who in turn act as a free sales and marketing engine by spreading positive word of mouth and generating referrals. In addition, promoters remain loyal, weathering company challenges and withstanding price fluctuations.
But not all NPS implementations have been as successful at tying efforts to sustainable revenue growth. And if this connection is not made, most implementations will fail to capture executive support and lose momentum. Here are some tips for successfully establishing this connection in your organization:
- Invest in the NPS microeconomics.The first step is to calculate the lifetime value of your average customer (CLTV). Then, using this as a baseline, tally up the differences in promoters, passives and detractors. Once you understand the difference in value between a promoter and detractor, you can build a cost justification and ROI for the investment required to turn detractors and passives into promoters.
- Get Your CFO Involved.Because NPS tends to be labeled a loyalty program, it often lives in the marketing department, where it can quickly be dismissed or shortchanged during resource allocation and budgeting. Make sure your CFO is involved with the process from the project’s inception and plays a key role in customizing the microeconomics for your organization. Only when metrics and analytics are applied and show positive return will this program turn into the long-term cultural shift required for sustained growth.
- NPS is a journey. NPS is not a quick project, and its implementation is not easy. It requires executive commitment, dedicated leadership, widespread acceptance, financial investment, and on-going scrutiny. This is not an initiative that will be wrapped up in a few months but rather an on-going process that will become an integral and pervasive part of how you do business. Though challenging and resource intensive, the payoff is worth it – real, sustainable revenue growth.
1. The study analyzed 12,000 companies and found that only 9% grew revenue and profit at a minimum compound growth rate of 5.5% while earning their cost of capital.NPS scores of these companies were calculated and compared.
2. Source: Q2 2009 Royal Phillips Electronics earning presentation
This is a guest post by Wes Hayden is the CEO of Virtual Hold Technology. VHT’s Conversation Bridge is a simple solution with huge impact that provides customers a consistent experience no matter how they try to contact you. Follow Wes on Twitter @WesHayden.