All entrepreneurs want to grow their businesses in terms of revenue, profit or market share. And if you're like most entrepreneurs, you're on a constant search for the silver bullet to sustained growth. I think I've found it.
I routinely visit successful growth-oriented firms to learn from their leaders. So, in June, I trekked to Las Vegas to meet with Tony Hsieh, CEO of Zappos, the online shoe retailer acquired in July by Amazon.com in a deal valued at more than US$900 million. I wanted to learn why people absolutely love Zappos. And in my quest, I discovered the silver bullet.
Since Zappos' creation just 10 years ago, it has become a billion-dollar-a-year business. It will increase its sales this year by almost US $200 million, despite the recession — and it's not a discounter.
What's driving this incredible growth?
In a word: happiness.
Hsieh believes he's in the happiness business. Zappos does everything in its power, with every single interaction, to wow its customers and ensure they are happy. As I walked through Zappos' 700-person head office, I witnessed the making of happiness at every step of my tour.
You might be saying to yourself, "Happiness? That's not measurable!" Well, according to Hsieh it is — and therein lies the silver bullet. It's called the Net Promoter Score (NPS), and it's a 30-year-old methodology created by Bain & Co. consultant Fred Reichheld. You get it by surveying your customers after you have completed a sale or service and asking them what Reichheld calls "the ultimate question": "On a scale of 0 to 10, how likely is it that you would recommend our company to a friend or colleague?" You then subtract the percentage of Detractors (those who gave you a rating of 0 to 6) from the percentage of Promoters (9 or 10), leaving the Passives (7 or 8) out of the equation. The difference is your Net Promoter Score.
According to Reichheld, world-class companies have an NPS of 20 to 50. Zappos, which tracks its NPS daily, scores an average of 93 — meaning at least 93% of its customers are highly likely to recommend Zappos to others!
It makes perfect sense that these enthusiastic Promoters are the turbocharged engine of Zappos' growth. After all, positive word of mouth spreads exponentially. But why is NPS the right way to measure customer happiness? Simon Lowe is the resident NPS guru at 1-800-GOT-JUNK? and the person who has operationalized the metric for us since we adopted it in January. (Yes, we've been using it all year, but the light bulb didn't go on for me until I visited Zappos.) Here's why Simon believes in NPS: "It's focused on customer loyalty rather than customer satisfaction, and this is why it is such a powerful metric to monitor. Loyal customers have different characteristics than satisfied customers. They refer more, spend more, spend more often and are willing to provide feedback. Satisfied customers do not generally have these characteristics."
Of course, it's great to have happy customers. The challenge is to make them even happier, and to turn the not-so-happy clients into Promoters. Although NPS is a measure, it can also be used as a catalyst for improvement. Simon believes that part of the magic of NPS lies not in the number itself, but in the qualitative feedback that comes from Promoters and Detractors. For instance, we have our franchise partners tell "NPS stories" at their morning staff meetings. They read out the comments of a Promoter or Detractor, and then ask the driver on that customer's job to identify what his team did well or what could have been improved. This daily group learning has helped our franchise partners improve their NPS scores.
Back at head office, we apply NPS to customers who book jobs online. After a customer scores us on "the ultimate question," they're asked to explain their rating. We then apply a simple process whereby our sales centre agents review and classify comments into broad categories for future reference. Each month, our analysts look for patterns in what makes our customers happy, and we take that information and figure out ways to do more of those things.
Our analysts also identify what bothers our customers, and then we try to eliminate those things. A lot of our bad scores come from customers who don't know how the junk we haul away is disposed of. Given that our current recycling levels approach 60%, we've concluded that there's an education and communication shortfall in our sales process — which, once implemented, will increase our NPS and ultimately improve customer happiness and loyalty.
When Amazon paid almost US$1 billion for Zappos, it wasn't buying an online shoe retailer. Instead, it was buying Zappos' ability to make its customers so happy that they'll urge other people to buy shoes from Zappos. By measuring NPS, you too can determine what turns your customers on and what ticks them off — knowledge that's crucial to developing the structures and systems that engender customer loyalty and referrals. Adopt this silver bullet in your business, and your customers will help you transform your firm into a gold mine.