Put down that spreadsheet. Throw away that calculator. Demonstrating ROI for your marketing efforts could be a calculation so simple you can just as easily do it in your head.
As marketers, we often think of customer satisfaction as a very complicated issue, with varied factors and “touch points” influencing the way customers regard our brands. But measuring return could be as simple as asking, “Would you recommend this business to a friend?”
That’s the radically basic question that author Fred Reichheld poses in his recent bestseller, The Ultimate Question: Driving Good Profits and True Growth.
Performance pressures, he argues, have led businesspeople to conclude that all profit is good profit, but Reichheld takes serious exception to that notion. Some profits are indeed “bad profits,” namely those that the company achieves while disappointing, or even outright angering, its customers. Such “bad” profits might look great in the short term, Reichheld writes, but ultimately they prevent longer-term profit growth. The key to generating “good profits,” he says, is a single-minded focus on customer satisfaction.
Reichheld, a Bain Fellow, proposes a deceptively simple calculation that he says captures a company’s balance between good and bad profits:
NET PROMOTER SCORE = % of Promoters – % of Detractors
“Promoters” would be those who answer “yes” to the question “Would you recommend this business to a friend?” “Detractors” would be those who answer “no.”
How can such a seemingly simple query even hope to capture such an important business concept? Reichheld says the truth is in the numbers. In a 2003 study of more than 150,000 Bain customers, Reichheld found a very strong correlation between a company’s Net Promoter Scores and its growth relative to its competitors. What’s more, companies that saw sustainable growth over a 10-year period had double the NPS of other companies.
Getting your company to adopt a replacement – or even an additional – ROI measure might take some doing. But at a time when all marketers are feeling the pressure to demonstrate the effectiveness of their efforts, and engaging in massive and complicated statistical analyses to so do, it’s nice to know that at least one expert – as well as a growing number of adherents – thinks the calculation could be as simple as “x minus y.”
Large Business, Measurement, Medium Business, ROI, Small Business
