Harvard Business Review
This article originally appeared in Harvard Business Review.
“On a scale from zero to 10, how likely would you be to recommend our company to a friend?”
As a consumer, you’ve probably encountered this sort of question dozens of times—after an online purchase, at the end of a customer service interaction, or even after a hospital stay. And if you work at one of the thousands of companies that ask this question of their customers, you’re familiar with the Net Promoter System (NPS), which Fred Reichheld invented and first wrote about almost 20 years ago. (See “The One Number You Need to Grow,” Harvard Business Review, December 2003.) Since then, NPS has spread rapidly around the world. It has become the predominant customer success framework—used today by two-thirds of the Fortune 1000. Why has it been embraced so enthusiastically? Because it solves a vital challenge that our financial systems fail to address. Financials can easily tell us when we have extracted $1 million from our customers’ wallets, but they can’t tell us when our work has improved customers’ lives.
That’s the objective of NPS. It gauges how consistently a firm turns customers into advocates by tracking and analyzing three segments: promoters, customers who are so pleased with their experience that they recommend your brand to others; passives, customers who feel they got what they paid for but nothing more and who are not loyal assets with lasting value; and detractors, customers who are disappointed with their experience and harm the firm’s growth and reputation. Promoters give a score of 9 or 10, passives a 7 or 8, and detractors a 6 or less. To calculate your firm’s overall Net Promoter Score, you subtract the percentage of your customers who are detractors from the percentage who are promoters.
While that arithmetic might seem simplistic, the full system is intended to inspire teams to deliver experiences that are not merely satisfactory but remarkable. When customers feel cared for, they come back for more and bring their friends.
The power of customer advocacy is evidenced by the remarkable success of NPS leaders. Consider the 11 public firms highlighted by Fred Reichheld and Rob Markey in their book The Ultimate Question 2.0. Over the past decade, their median total shareholder return was five times the US median (for public companies with revenue of more than $500 million as of 2010). Those results motivated more firms to track their Net Promoter Scores—and some to report them to investors.
Unfortunately, self-reported scores and misinterpretations of the NPS framework have sown confusion and diminished its credibility. Inexperienced practitioners abused it by doing things such as linking Net Promoter Scores to bonuses for frontline employees, which made them care more about their scores than about learning to better serve customers. Many firms amplify the problem by publicly reporting their scores to investors with no explanation of the process used to generate them and no safeguards to prevent pleading (“I’ll lose my job if you don’t rate me a 10”), bribery (“we’ll give you free oil changes for a 10”), and manipulation (“we never send surveys to customers whose claim was denied”). No details are provided about which customers (and how many) were surveyed, their response rates, or whether the survey was triggered by a specific transaction. Reports rarely mention whether the research was performed by a reliable third-party expert using double-blind methodology. In other words, some firms have turned Net Promoter Scores into vanity statistics that damage the credibility of NPS.
Over time, we realized that the only way to make the system work better was to develop a complementary metric that drew on accounting results, not on surveys. We needed one that would illuminate the quality (and the likely profitability) of a firm’s growth. It had to be based on audited revenue from all customers, not just on a potentially biased sample of survey responses, so that it would be far more resistant to gaming, coaching, pleading, and the response biases that plague the results of non-anonymized surveys. We’re confident we’ve successfully developed that metric.
In this article, we introduce earned growth as the accounting-based counterpart to the Net Promoter Score, one that will reinforce the effectiveness of NPS, providing firms with a clear, data-driven connection among customer success, repeat and expanded purchases, word-of-mouth recommendations, a positive company culture, and business results.