Most small business owners know whether their customers are satisfied. But once you build your business beyond more than a handful of customers and just a couple of employees right in front of customers, how do you monitor your customer satisfaction levels?
Most owners solve the problem by launching some sort of customer satisfaction survey. The problem with typical survey, however, is that, according to Fred Reichheld, author of The Ultimate Question, most customer satisfaction surveys do a poor job of predicting the likelihood of a customer either repurchasing from you or referring your company to a friend.
Determined to find a better way to quantify how well a company is serving its customers, Mr. Reichheld developed the Net Promoter Score methodology, which is based around asking customers a single question that is predictive of both repurchase and referral.
The question: "On a scale of 0 to 10, how likely are you to refer [insert name of company]to a friend or colleague?"
Mr. Reichheld discovered that when customers answered this question with a nine or a 10, they were statistically more likely to repurchase from the company and/or refer it – so much so that Mr. Reichheld found that the companies that scored well on this measure were more likely to grow than were lower-scoring companies.
Not surprisingly, the news that a researcher had actually discovered a way to predict growth triggered Fortune 500 companies around the globe to latch on to the methodology. Today, companies such as Intuit Inc. and Southwest Airlines Co. use the Net Promoter Score methodology as a way to quantify their customer experience.
To see how your company measures up, survey a group of your customers by asking the question above. Those who rate you a nine or a 10 are your "promoters," in Mr. Reichheld's lingo – enthusiastic loyalists who will keep buying and making referrals.
The customers who give you a seven or eight are your "passives." They are satisfied but not likely to repurchase from you or refer your company any time soon.
And those who score between zero and six are your "detractors" – the angry customers who have the potential to badmouth and cause damage.
To calculate your Net Promoter Score, take the percentage of your customers who are promoters and subtract the percentage of detractors. For example, if 45 per cent of your customers are promoters, 20 per cent are passives and 35 per cent are detractors, then your Net Promoter Score would be 10 per cent (45-35=10).
Mr. Reichheld found that the average Net Promoter Score among the companies he surveyed was 10 per cent to 15 per cent, so, by definition, if your score is north of 15 per cent, you're above average, and you can expect your company to grow at a rate faster than the economy.
A small handful of companies have achieved a Net Promoter Score of at least 50 per cent, which Mr. Reichheld defines as "world class."
As popular as the Net Promoter Score methodology is among the Fortune 500, I think it is even better-suited for use among smaller companies for a number of reasons:
You can deploy the questionnaire in five minutes using a survey tool like Survey Monkey and enjoy a very high response rate because answering it is not a burden on respondents.
It gives you a common language with investors
If you're planning to sell all or part of your company in the future, tracking your customer satisfaction using a well-established, recognized tool allows potential acquirers and investors to quickly gauge how satisfied your customers are compared with other companies in which they have invested. Many private equity firms and venture capitalists will insist on performing a Net Promoter Score survey with your customers before they invest in your business.
The survey can be deployed and the data analyzed easily in-house.
Unlike most surveys, which ask respondents a litany of time-consuming questions that render interesting but often irrelevant data, the Net Promoter Score methodology asks the only question that has been proven to predict the likelihood a customer will repurchase or refer you – the two things that fuel growth of any business.
If you're starting to lose the pulse of how satisfied your customers are, consider asking the one question you really need the answer to.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He is the author of Built To Sell: Creating a Business That Can Thrive Without You, published by Portfolio Penguin.