What is the single most effective way to assess whether a business will be successful or not?
I came across the possible answer while reading a blog by John Warrillow (author of Built to Sell). It is called the ‘net promoter score’ (NPS), and it’s incredibly easy to apply.
You simply ask the customer of a business one question:
“On a scale of zero to 10, how likely are you to refer to a friend or colleague?”
By comparing the number of answers of 9 or 10 with answers in the range 0 to 6, you get an NPS score.
Here’s how to do it:
1) Work out what percentage of your customers answer 9 or 10. These are ‘Promoters’ = A
2) Work out what percentage of your customers answer 0 to 6. These are ‘Detractors’ = B
(The 7 or 8 scores (‘Passives’) are ignored when working out the NPS.)
3) NPS is A minus B
For example, if 45% of your customers are Promoters, 20% are Passives and 35% are Detractors, then your Net Promoter Score is 10% (45-35=10).
The average NPS is 10-15%. So if your score is more than 15%, you’re above average, and you can expect your company to grow at a rate faster than the economy.
A small handful of world class companies have achieved a Net Promoter Score of at least 50%, e.g. Apple, Google and Harley-Davidson.
If you are looking to buy a business, arguably, this is the question you need to know the answer to. Therefore, if you are even planning to sell, you should start to measure this so you can show a future buyer the (hopefully) upward trend in your NPS.
As a result of learning about this, I am going to change the ‘How are we doing’ question in the meeting agenda that we use with clients.
For more details of the NPS, visit John Warrillow’s blog.
Do you agree this is the best question to ask? If not, what is?