Tuesday, February 17, 2009

Want to grow your business? Just ask your customers.

Many of you are entrepreneurs. You create software with REALbasic that you sell to others. Chances are, like me, you are trying to grow your business. There are many ways to do this but I'm going to share with you one particular method we're using at REAL Software.

Now it may seem obvious to ask customers what they want and ask them how well you are doing at providing what they want. Just about every company does this at some point. It turns out, however, that how you interpret the answers you get can make all the difference in the world when it comes to growing your business.

Early last year I was reading an article about this in Fortune magazine. Loyalty expert Fred Reichheld spent ten years studying the relationship between how people respond to surveys and their actual behavior - repeat purchasing and referral patterns. He wrote a book about his research findings call The Ultimate Question published by Harvard Business School Press. It was a Wall Street Journal best seller.

Fred says that once per quarter, you should ask your customers two questions:

1) How likely are you to refer us to your friends and colleagues? (0 to 10)
2) Can we follow up with you regarding your answer to question #1. (yes or no)

That's it. That's the entire survey. Now many of you have probably asked these questions before but again, it's all in how you interpret the results. According to Fred, your customers will be in three groups: promoters, passives and detractors. Promoters give you a score of 9 or 10. Passives give you a score of 7 or 8. Detractors are those that give you a score of 6 or less.

Promoters are loyal customers that actively promote you (as their title suggests) to others.

Passives are happy with your product or service, but they are not happy enough to be enthusiastic and loyal. On the other hand, they are not saying anything negative to others about you either, but they are more likely to be open to competitive offers so turning them into promoters is a good thing.

Detractors are not happy and may be saying negative things about your product or service that are damaging your brand and slowing your word-of-mouth growth.

To interpret the results of such a survey in a way that will help you know which actions to take, you calculate your net promoter score. This is calculated by taking the percentage of promoters and subtracting the percentage of detractors. Notice that passives don't count in this case. This means that lowest possible score is -100 (all detractors) and the highest possible score is 100 (all promoters). Next you follow up with all of those that gave you permission to do so.

Promoters will tell you why they love you. This is good information because you may find out that they love you for reasons you were not aware of. Passives and more importantly detractors, will tell you why they are not promoters. What you need to do is involve everyone in your company in solving the problems the detractors have. Solve their problems, and at the very least, they won't be detractors anymore.

If you dedicate yourself to changing detractors into passives or better, promoters, you will find your NPS (Net Promoter Score) increasing. According to Reichheld, the companies with the highest NPS in their industry tend to be the fastest growing. Everyone in your company should know your NPS because everyone affects it.

So what is a good NPS? It really depends on your industry. In 2008, Adobe was the consumer software company with the highest NPS of 46. Apple topped the computer hardware category at 79. Apple has only 2% detractors which is outstanding.

I highly recommend Fred's book, The Ultimate Question. You can also learn a lot from the official web site, netpromoter.com.


Steve Garman said...

Geoff, have you been able to calculate a NPS for the latest RS customer survey yet?
If so, would you like to share it with us?

Geoff Perlman said...

Our NPS has improved since we first started calculating it in June of last year but it's no where near where it needs to be for me to be happy with it. However, the good news is that we now know exactly what we need to do to increase it. The value of NPS is that it gets you incredibly focused on exactly what your customers are asking you for. That seems obvious enough but it's easy to get caught up in what you think is cool and what you think customers might want rather than doing the work to find out for sure.