Ask one question. Evaluate any business

Today I want to share with you a very simple but potent technique for evaluating the potential of any product, service, company or concept, writes Robert Clay of Marketing Wizdom.

Net Promoter Score

Frederick F. Reichheld is a global authority on customer loyalty. He is also the father of a simple but powerful theory known as the Net Promoter Score. The theory states that if you ask a sample of your customers the one simple question “How likely is it that you would recommend our product, service or company to a friend or colleague?” you can calculate your net promoter score by finding the ratio between those customers who are promoters and those who are detractors.

Each customer is asked to respond to the question using a 0 to 10 rating scale, with 10 being “extremely likely to recommend” and 0 being “extremely unlikely to recommend.” Reichheld considers that those giving a rating of 9 or 10 are promoters, those with a rating of 7 or 8 are passively satisfied, and those with ratings from 0 to 6 to be detractors.

By subtracting the percentage of detractors from the percentage of promoters, you arrive at your net promoter score. Based upon Reichheld’s research, companies with net promoter scores of 75 percent or higher are held in high esteem by their customers.

One question. Meaningful insights

Overall, the net promoter score can offer meaningful insights into how your marketplace feels about your business, product, concept, or content. By measuring audience attitudes in this way, you can evaluate your offering, your competition, and even new concepts.

The net promoter score is a useful way of determining both the relative strength and the execution of a concept, and it provides an indication of the concept’s word-of-mouth or viral potential. We recommend that participants in our Eureka program use it, among other things, to evaluate whether a social media strategy or concept has any real-world merit.

You can learn a lot by asking several hundred people who have been exposed to your concept: “Based on what you now know or have experienced, how likely would you be to recommend this product, service, company or concept to a friend or colleague?”

By asking just this one question and averaging the scores of a few hundred respondents, you can begin to determine the true potential of any concept. You can then refine and tweak your concept to better satisfy the needs and preferences of your marketplace. You can also position your concept to ensure that it appeals to their attitudes, values, and beliefs, and set expectations for doing future business.

Radical change

While easy to grasp, the Net Promoter Score metric represents a radical change in the way you manage your customer relationships and organise for growth. Rather than relying on customer satisfaction surveys that all too often are ineffective, you can use Net Promoter Score to evaluate and measure customer relationships as rigorously as you now measure profits.

You can also use it to hold employees accountable for treating customers right, and it clarifies the link between the quality of your customer relationships and your growth prospects.

How do companies measure up? According to Frederick Reichheld’s research, the average firm sputters along at an NPS efficiency of only 5 – 10%. In other words, promoters barely outnumber detractors. Even worse, many firms—and some entire industries—have negative Net Promoter Scores, which means that they are creating more detractors than promoters day in and day out.

Abysmal Net Promoter Scores like this explain why so many companies can’t deliver profitable, sustainable growth, no matter how aggressively they spend to acquire new business. Companies with the most efficient growth engines—companies such as Amazon, eBay, Harley-Davidson and Costco—operate at NPS efficiency ratings of 50 – 80%. So even they have room for improvement.

In concept, it’s just that simple. But obviously, a lot of hard work is needed to both ask the question in a manner that provides reliable, timely, and actionable data—and, of course, to learn how to improve your Net Promoter Score.

If you’ve used Net Promoter Scoring in your business, please comment on your experiences. If you haven’t used it, what do you think of the idea? Your comments and thoughts are welcome.