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How satisfied are your customers? Do you know how to truly measure customer satisfaction beyond the standard surveys most companies throw out? Do you know how to interpret the data from those surveys so that you know exactly how customer satisfaction affects your bottom line?
Fred Reichheld, a Fellow at Bain & Company and author of several best-selling business books on customer loyalty, believes he has the magic bullet to not only provide you and other business owners the hard data on your customer satisfaction rates, but also quantify exactly how those numbers can actually predict your company’s future growth.
I’ve mentioned his ground-breaking Net Promoter System (NPS) elsewhere in a previous blog post about the supreme importance of customer satisfaction in measuring call center performance. It’s a deceptively simple formula with potentially powerful consequences for a business:
In this equation, P = Promoters, D = Detractors, and a third group is the Passives. The formula is based on the very popular question found on countless customer satisfaction surveys: How likely are you to recommend [insert service/product/company here] to your friends? The respondent is typically asked to rank their answer on a scale of 0-10.
Reichheld categorized those who ranked the company a 9 or 10 on this scale to be “Promoters,” i.e., loyal and enthusiastic supporters of the brand who are very likely to buy again in the future and refer others to the company. Those who offered a 7 or 8 score were deemed “Passives,” who are satisfied but not enthusiastic about the company and could easily be swayed by competitors. Those who scored 0-6 were considered “Detractors,” deeply dissatisfied customers who’ve had a poor – perceived or otherwise – experience with the brand and who could potentially damage it.
Reichheld found that if you subtracted the percentage of Detractors from the percentage of Promoters, the resulting number (the NPS) is a prime indicator of your company’s future growth prospects. The higher your NPS, the more likely your company will grow and prosper.
He discusses the formula at length in his book, The Ultimate Question: Driving Good Profits and True Growth (and its updated edition published in 2011), where he shared numerous stories of wildly successful companies who have used the NPS to essentially create armies of loyal evangelists and, in turn, boost their profit margins. Large, well-known brands such as Apple, Charles Schwab, and Progressive Insurance, as well as smaller brands such as Carolina Biological Supply, all integrate NPS into their corporate culture.
We all know how successful many of these companies are, and how brand-loyal its customers tend to be. Could it be directly attributable to their enthusiastic embrace of NPS?
NPS itself isn’t without its own detractors. Critics contend that it measures merely intent, not actual behavior, i.e., respondents only say that they’ll refer the company to others, after all. Others point out that the number can be deceptive; much like the maligned BMI (Body Mass Index) is in determining one’s health status. For example, if Company X has 20% Promoters, 80% Passives, and 0% Detractors (20 – 0), their NPS is 20. Company Y, however, has 60% Promoters, 0% Passives, and 40% Detractors (60 – 40) – its NPS is 20 as well. Clearly these two companies have very different customer satisfaction rates.
Still, it’s hard to argue with the reams of case studies showcasing the success and profitability of NPS across all these different companies and verticals. Amazon.com, the Vanguard Group, Rackspace, Harley Davidson, the LEGO Group, the Four Seasons Hotels Group, and the much-heralded Zappos.com (mentioned in my colleague Terri’s recent blog post), are all ardent practitioners of NPS. And while the single number may be suspiciously oversimplified to some, it’s clear when reading the case studies in Reichheld’s book that implementing a customer-focused culture around NPS is challenging, resource- and time-intensive, and not for the faint of heart. The rewards, however, can be nothing short of transformative.
I’d love to hear from those of you who’ve implemented NPS within your company and what results you’ve gotten from it. I’d also love to hear from those who are skeptical of NPS, and why. Feel free to share your stories!