One way to measure the effectiveness of a sales team is to look at the sales numbers. One way to measure the effectiveness of the sales leader is to look at the effectiveness of the team. One advantage the sales team has when it comes to measuring effectiveness is that it is measuring something tangible - sales dollars.
But what about the rest of us? Is there a way to measure the effectiveness of the rest of your leaders?
You probably already have a sense of the teams that are the most productive and the happiest. You likely have a good idea of which departments are more productive. But what about linking employee productivity to profitability, based on the strength of the leader? You presumably don’t track that metric, unless you’re already using Net Promoter Score or NPS.
NPS is a concept that says we can predict, and even measure, revenue based on customer loyalty. The feeling is that if a customer is loyal to our brand, then we will earn more money. It’s quite a logical argument because it’s easy to see how a loyal customer might stay longer, buy more, and bring others.
But can we make the same correlation between revenues and loyal employees? I believe we can.
NPS is a concept that comes from Fred Reichheld. Reichheld was a Harvard graduate and a consultant at Bain & Co, a large international consulting company based in Boston. He wrote about his loyalty business model back in 1996 when he published his first book, The Loyalty Effect, and it became more popular when he wrote an article for Harvard Business Review titled The One Number You Need to Grow. So as far as business models go, it’s fairly new.
Reichheld then wrote The Ultimate Question: Driving Good Profits and True Growth in 2006, which focuses on NPS. This is where I was introduced to the world of NPS. He then followed up with the New York Times bestseller The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World. I believe its popularity is because of its simple concept and the nature of what it measures. After all, anyone making any headway when it comes to measuring intangibles, as long as it’s theoretically sound, will gain popularity. And because NPS is designed to measure money, well, that in itself will garner some attention.
Let’s first talk about the rating system NPS uses.
NPS asks a single question that is rated on a zero-to-ten scale. It uses zero as a starting point instead of one, to reduce the confusion regarding which end of the scale is high, and which is low. With a scale that starts at one, people will sometimes think that one is the high end because to be number 1 is the best and 10 would be the worst. Think David Letterman’s top 10 list. Others would assume that 10 points would be worth more than 1 point so 10 would be the high end. Think report cards and many card games. But even in some card games, the Ace can be either high or low. So to reduce the likelihood of confusion about what the scale means, it begins at zero. Not sure there’s an example of zero being high and ten being low, although there are examples where a lower score is better; think golf.
The question itself asks, “On a scale of zero to ten, how likely are you to recommend this ________ (product, service, leader, book, etc.) to a friend or colleague?"
The question plays on different psychology than does a question that asks a customer if they are satisfied. You could argue that customers that are over the moon thrilled with your offerings could be equated to a loyal customer, and I’d buy that. But if the question tries to gauge our satisfaction, then it’s a lower standard to begin with.
The NPS question, however, asks whether you would put your own reputation on the line to tell someone they should use or do something…. to spend their money on it. The inherent risk is that if they do as you suggest, and they don’t like it or think it’s a waste of money, it’s a personal reflection on you and can negatively impact your reputation. How many of us are willing to take that risk, whether inside work or outside?
As you can see, the NPS question comes from an entirely different place psychologically than the satisfaction question so think of it as measuring something different.
What’s being measured here is loyalty. Word of mouth advertising can be the lifeblood of any organization, and the more people we have saying nice things about us, and the fewer people we have saying nasty things about us, the better. And for those who are actually willing to spread the good word, those ambassadors give us free advertising. With the increase in acceptance of the social media phenomenon, things that go viral can make us or break us, so we all understand the impact.
Now, lest you think that there is just not enough information in the single question, you’ll be happy to know that there is a follow-up question that you can also ask, which is, “What is the primary reason for giving the answer you did?” Here, the rater has an opportunity to give some qualitative information about why they think what they think, and flush out some of the reasoning behind the quantitative number they gave as a rating.
Speaking of the rating, I’d like to take a moment to clarify the difference between an NPS score and a satisfaction score. This is important because the scale is very similar (or exactly the same if you add a zero to your satisfaction question scale) but the range is very different because of the way NPS is calculated.
First, let me explain the concept of the calculation this way.
Imagine that you’ve just started a new school and you’re out on the schoolyard playing. There is an entire playground full of children also playing, and some have come over to play with you. You’re getting along very nicely and some of your new friends even say some nice things about you to their other friends, causing those people to also come to play with you and be your friend.
But then there is this one child on the playground who is very vocal about all the things that they don’t like about you. They begin to tease you and make fun of you, and they do so loudly so that all the children can hear.
What happens next?
Well, some of the children will ignore the negative person and continue playing with you. But some of the children will either stop playing with you or might avoid you on the playground tomorrow. Why???? Possibly it’s because being seen playing with someone who now has been declared (quite unfairly and incorrectly) as less than worthy, might be a negative reflection on them. Some children who never played with you yesterday might not bother even coming over to see for themselves if they like you. The words of the negative person have become part of the narrative that surrounds you, and it costs you some potential friends. Hey, the world isn’t fair, but it’s the world. And reputation matters. Just think back to your high school days and the number of people whose reputations preceded them!!!
As a business, you have a reputation, and people might not be willing to try your product or service based on the words of one person, despite the fact that many others are happy with you. It is this powerful impact that one negative review has on our overall revenue that gives credence to the way NPS is calculated.
In the NPS world, there are 3 categories of customers:
- Promoters: people who rate you 9 or 10
- Passives: people who rate you 7 or 8
- Detractors: people who rate you 6 or less
The calculation is achieved by taking the number of Promoters, subtract the number of Detractors, and divide that number by the total number of ALL respondents.
For example, I’ve conducted a training class for a group of 25 people. When answering the NPS question:
- 20 people scored 9 or 10 (Promoters)
- 5 people scored 7 or 8 (Passives)
- 0 people scored 6 or less (Detractors)
The NPS score for this class is .8, or as a percentage, 80.
NPS = 20 / 25 = .8 (# of Promoters, minus # of Detractors, divided by total number of responses)
But what happens if one person in the class was really not happy. Remember what the question asks that they are scoring. “How likely are they to recommend it to a friend or colleague?” Well, if they were really unhappy, not only are they unlikely to recommend that someone else attend, they may even suggest to people that they NOT attend. This would be bad news for me.
So let’s say they have answered the NPS question this way:
- 20 Promoters (10@9, 10@10)
- 4 Passives (2@7, 2@8)
- 1 Detractor (1@6)
If this were a “satisfaction” survey, we would average out all the numbers, we would get a satisfaction score of 90.4% [(10*9 + 10*10 + 2*7 + 2*8 + 1*6) /25]. That’s pretty good, right?
But with the NPS calculation, we would get an NPS score of 76. [(20 – 1) /25]
I don’t know about you but I can tell you that if I brought home a report card with a 90 and a 74, there would be two very different conversations going on.
And therein lies part of the challenge with NPS. People misunderstand what the number actually means.
There are two reasons for this misunderstanding. The first is related to the report card example, in that there are emotions tied to numbers. We think 100 is perfect. We think 49 is a failure. We think 75 is average. In the North American business culture, the average isn’t usually in business for very long, so 75 is seen as a bad thing.
The second reason is that we are talking about two very different scales. Sure, the numbers in the question may be the same, but because of the way NPS is calculated, the range is actually -100 to +100, in other words, a 200 point spread. In a satisfaction score, the range is 0 to +100, only a 100 point spread. So depending on your industry, an NPS score of 74 might be fantastic. In fact, in some industries, think cell phone or airline, where we often have reason to be unhappy, an NPS of 30 can be good if that makes us leaders in our industry.
Okay, so we’ve defined the question(s), we’ve explained the scale, we’ve looked at the calculation, and we’ve discussed the misunderstanding around the score. If I said people like it because it’s simple, you might be thinking that it’s not really all that simple; and you might be right. But the beauty of the NPS is that the question is easy to answer, it’s easy to calculate the score, and it’s been shown to connect to revenue growth. With all this going for it, I’m not sure why more people aren’t using it.
As I said at the beginning, I believe NPS is one way we can measure the effectiveness of a leader. Asking if we would recommend our leader to a friend or colleague is a very different question than asking if we are satisfied or happy with our leader. It gets at different information that can help us understand where the great leaders are in our company, who we can use as role models, and who needs more help to grow in their leadership role.
At Athena, part of what makes us different as a business school is that we measure the effectiveness of our programs. There are many ways we do that, but one way is by calculating an NPS score for every leader both before they begin, and when they are finished. The difference in these two numbers is measurable. What better way to find out how you’re doing as a leader than to ask the people who report to you, would they recommend you as a leader to a friend or colleague? They may say one thing to your face to protect their feelings, but if a friend came to them and said they were applying for a job that reports to you, what would they say to their friends???
That, my friends, is the power of the Net Promoter Score!
Note: NPS is taught in "Leadership Mindset", part of the Strategic Leadership certificate program by Athena Executive Education Inc.
