How This One Metric Can Make or Break Your Business

Every successful business depends on tracking certain metrics. As a business owner, you need to be continually improving; as legendary business analyst Peter Drucker said, “If you can’t measure it, you can’t improve it.”

Whether its the cost of customer acquisition, return on investment, growth rate or any of the other multitude of metrics or Key Performance Indicators (KPI), you need to track how you are performing to identify what areas need improvement, make changes will lead to improvements, and judge whether the changes resulted in the desired outcome. The areas that are most vital to business success should be monitored the most closely.

Successful Businesses Depend on Satisfied Customers

For any business, acquiring and keeping customers is key to growth. Any business depends on happy and satisfied customers. It is all but impossible to grow a sustainable business if your customers aren’t satisfied. Measuring customer satisfaction can help you measure two key aspects of your business, returning customers and customer referrals.

Returning Customers

Any first-year business student can tell you that it is far cheaper to get an existing customer to buy from you than to acquire a new customer. Loyal customers will return to you again and again. According to The Harvard Business Review, “acquiring new customers for your business is anywhere from 5 to 25 times more costly than retaining an existing one.”

Referrals

An added benefit of satisfied customers is that they will often refer new clients to you, dramatically driving down the cost of acquisition. Happy customers can be your best marketing. Increasing referrals is the cheapest and most powerful way to gain new customers.

As The Harvard Business Review’s Frederick F. Reichheld writes, “evangelistic customer loyalty is one of the most important drivers of growth. While it doesn’t guarantee growth, in general, profitable growth can’t be achieved without it… A customer’s willingness to recommend to a friend results from how well the customer is treated by frontline employees, which in turn is determined by all the functional areas that contribute to a customer’s experience” explains Reichheld.

Measuring Customer Satisfaction

Surveying your customers can be a great way to understand how you are doing. But oftentimes customer satisfaction surveys are too complicated and don’t result in actionable insights. You need a simple, concise way to measure customer satisfaction. By asking a simple question the chances of getting customer feedback goes up dramatically. And by keeping your reporting metrics simple, it gives you and your team a clearer focus.

So how can you easily but meaningfully measure how satisfied your customers are?

Net Promoter Score

Almost twenty years ago, Reichheld, then the director emeritus at Bain & Company, a management consultancy, pioneered the idea of Net Promoter Score (NPS). After two years of research, he identified a single survey question that serves as a predictor of growth. “that question isn’t about customer satisfaction or even loyalty… it’s about customers’ willingness to recommend a product or service to someone else…the percentage of customers who were enthusiastic enough to refer a friend or colleague—perhaps the strongest sign of customer loyalty—correlated directly with differences in growth rates among competitors.”

NPS is a simple but powerful way to measure the satisfaction of your customers. It relies on the answer to the question “How likely is it that you would recommend [company X] to a friend or colleague?”

Reichheld explains that the power of NPS lies in its simplicity. “By substituting a single question for the complex black box of the typical customer satisfaction survey, companies can actually put consumer survey results to use and focus employees on the task of stimulating growth… The path to sustainable, profitable growth begins with creating more promoters and fewer detractors and making your net-promoter number transparent throughout your organization. This number is the one number you need to grow. It’s that simple and that profound.”

Determining Your Net Promoter Score

To get your company’s NPS, you first need to ask your customers to respond to the question “How likely is it that you would recommend [YOUR COMPANY or PRODUCT] to a friend or colleague?” on a zero to ten scale. Zero designates a not at all likely, five is neutral and ten means extremely likely.

Here is a sample NPS question from Survey Monkey:

Don’t add more questions. It will lower your response rate and add more noise. The point is to keep it simple. (After you have received responses it’s a good idea to act on the responses to identify unsatisfied customers and try to improve it. But that is in addition to the work of determining your NPS.)

The simplest way to get responses is to ask customers via email (you are collecting your customer’s email address aren’t you? If not you should start right away, for many reasons). If you don’t have an email, you might try to survey customers on social media. That could result in people who aren’t customers replying, but its a start. If you only have physical addresses, you can send a mailing with a return postage paid postcard. However you do it, you need to get as many customers as possible to honestly reply to the question.

Keep in mind you are trying to get real feedback from real customers. If you are a small business and have a limited amount of customers, make sure you don’t survey close friends or family, as they will likely inflate your positive ratings and mask the real data.

Going forward, you should find a way to ask as many new customers to respond to the question as possible. Consistently tracking your NPS over time is key to improving.

Once you have responses it’s time to reach your net-promoter score by calculating the percentage of customers who are promoters versus detractors. Promoters are those who gave you a nine or ten, while detractors responded zero through six. To arrive at your net promoter score, subtract the percentage of detractors from promoters. “Tracking net promoters—the percentage of customers who are promoters of a brand or company minus the percentage who are detractors—offers organizations a powerful way to measure and manage customer loyalty,” says Reichheld. “Firms with the highest net-promoter scores consistently garner the lion’s share of industry growth.”

What to do once you know you NPS

With the net promoter score, you can understand your current ranking and evaluate changes over time. As you consistently ask customers to respond to the question, NPS will help you see if you are improving, and help you identify ways to increase your score over time.

It can also yield valuable and actionable data. If you can track the respondent with their interaction with you, you could also dig in and see if there are any patterns that can help you improve your business. Compare strong advocates to those unwilling to recommend, what differentiates their shopping experience? Compare promoters against a specific product. Do customers that purchase one product or service consistently respond differently than the average? Does the salesperson they interacted with have an effect? If you have more than ore branch, comparing them could yield valuable insights.

As you focus your company on increasing your NPS, you should find a way to link positive customer feedback to employee rewards and compensation. By aligning your goals with those of your employees you stand a much better chance of seeing real results.

Successful businesses depend on satisfied customers. By understanding and acting on your Net Promoter Score, you have a simple but powerful tool to measure perhaps the most important aspect of your business.

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