For decades, Net Promoter Score or NPS has been the gold standard for measuring the success of CX efforts.
But its creator says the metric has been co-opted and is misused by too many companies. The most successful way to use NPS going forward is to combine with a new metric for CX success.
Fred Reichheld says the crux of NPS is that every time you touch a life, you either enrich it or diminish it. NPS was designed to measure progress and encourage brands and employees to enrich their customers’ lives so much that they would want to recommend the product or service. But in recent years, NPS has become so tied to frontline compensation that it has ruined the aspirational mindset. It’s led to an overload of surveys that are ineffective for companies and annoying for customers.
You can watch the video of our full discussion below. For more content like this, please subscribe to my Youtube channel.
Reichheld created a new metric to push brands towards the aspirational view of helping customers and enriching their lives: earned growth rate.
In its simplest form, earned growth rate tracks the amount of growth a company has earned through repeat purchases and customers referring the business to family and friends.
Reichheld says earned growth rate follows the same mentality as NPS but is a more results-driven and accurate view of success. If companies are delivering a great customer experience, customers will want to tell their family and friends, which increases the earned growth. Earned growth rate forms a powerful team with NPS to gauge CX success.
A major benefit of focusing on earned growth rate is cost savings. Instead of paying for sales and marketing efforts to attract new customers, companies can spend less to retain current customers and get referrals.
Reichheld points to glasses brand Warby Parker, which uses earned growth rate and found that new customers coming in from referrals are more profitable and have a lower acquisition cost. Because these customers know how the brand works from what their family or friends told them, their average ticket is higher, retention is higher, and they are more likely to turn into promoters themselves and tell their friends about the brand.
The first step to tracking earned growth rate is to move to customer-based accounting. Monitoring sales and growth by product or service line like many brands do doesn’t provide knowledge of what customers are returning or who is making referrals. Instead, Reichheld says brands need to move to tracking sales by customer, which offers more insights into how much revenue comes from referrals.
Finding how customers come to your brand is also crucial. Reichheld says even a simple question during customer onboarding about the primary reason they decided to do business with you can show where customers are coming from.
NPS has long been the go-to metric for many companies. But moving towards earned growth rate can be more accurate and effective. Together, NPS and earned growth rate can take CX efforts to the next level.