Functions and Frameworks is dedicated to helping business owners innovate

Monday, September 16, 2013

How to Assess Your Growth Engine

Identifying your business' or department's growth engine is one thing, assessing if it's growing is another. Yes you could be jumping for joy that you've finally figured out where the revenues are coming from but are you also monitoring the effectiveness of your programs to sustain and fuel its upward direction?

The reason why I am asking these questions is that if you want your business targets trend as your forecasted direction, you have to know if you are doing the right things. But how to do this? Simple - all you need to know is one number.

The Net Promoter Score

Proponent Fred Reichheld believes that there is a direct correlation between customer experience and revenue growth. Further research supports Reichheld's findings from different business sectors showing that a high net promoter score is directly proportional to their growth. The higher it gets, the faster the top-line growth.

But what is this metric? Simply put - it is a measure of a customer's experience through a 10 points rating card. The higher the score, the higher instances of repeat visits and loyalty conversions.

The Science Behind the Metric

The science behind the net promoter score is simple. Customers are asked a very specific question regarding their recent experience.It is important to note that a crucial factor in this metric is the time element. The question must be asked as near as when the experience happened. Ideally - ask immediately!

The logic behind asking at the right time specially after the customer experienced your offerings or services is that the answer of these customers have higher statistical probabilities in repeat business. The emotional connection to an experience will leave an invisible footprint that will allow these customers to relive the feelings once forced to answer in a numerical scale. The stronger the emotional connection, the more precise is the rating.

Highly satisfied customers would rate it 9 or 10 and would even rave about their experience in their social networks or their close friends. "If I can give it an 11, I would have!" - although an exaggeration, this is too common for people who were wowed with a great experience. Hence, we call these people "promoters". As soon as they recall their 'awesome' experience, a strong surge of happy hormones builds up from inside and forces the customer to "promote" the brand or company.

Dissatisfied customers would rate it Zero or 1 and people who has a tendency to say not-so-good things about your brand or company would rate it from zero to 6. These are the detractors. Their emotional detachment from your brand or company is very horrendous that it is normal for them to bash your brand at the first chance they get.

Passive customers are those who will rate you 7 or 8. They will neither promote or say bad things about your company.

How to Measure:

Measuring this is very easy. Just ask this question after the customer experienced your brand or offerings:

"How likely are you to recommend us to your friends or family?"

Ask them to rate it from Zero to 10. Zero as the lowest, 10 as the highest.

Once you consolidate all the responses, get the percentage rating of each score. Afterwards, add the rating for points "9 and 10" and subtract that from the rating for points "Zero to 6". The answer is your net promoter score.

An Example:

After asking customers how likely they will recommend our redemption office after redeeming their products, we got the following points:

0 - 5%
1 - 5%
2 - 0%
3 - 0%
4 - 10%
5 - 0%
6 - 0%
7 - 5%
8 - 20%
9 - 25%
10 - 30%

Net Promoter Score = 30% + 25% - 5% - 5% - 10% = 35%

This means that the redemption service has a 35% probability of being recommended to other people. In other words, 35 out of 100 customers who will use the facility will come back or recommend people to try it out for themselves.

Simple right?

Now what are you waiting for - start measuring your NPS!