From Net Promoter Score
to Earned Growth Rate
to Earned Growth Rate
Why does the Net Promoter Score (NPS) indicate growing customer loyalty, yet not correlate well with your company's revenue growth? The issue lies in the limitations of NPS. To get a clearer picture, you need to consider an additional key indicator of your loyal customers.
Using a simple data model, we demonstrated how Tableau can calculate and visualize this metric effectively.
The Vibrant History of Net Promoter System
In a traditional Net Promoter Score (NPS) survey, customers are asked how likely they are to recommend the company on a scale of 1-10 after an experience. Those who give scores of 9 or 10 are considered Promoters. Scores of 7 or 8 are classified as Passives, and scores of 6 or below are Detractors.
To calculate the NPS:
1. Add up the total responses.
2. Calculate the percentage of responses for each group (Promoters, Passives, and Detractors).
3. Subtract the percentage of Detractors from the percentage of Promoters to obtain the NPS score.
This system has gained significant popularity!
What are the shortcomings of NPS?
- Organizations often misunderstand the concept of NPS and attempt to calculate it incorrectly.
- The indicator is sometimes misused by linking it to employee salaries or bonuses.
- NPS is based on the client's intention, which may not translate into actual behavior.
- It doesn't account for the possibility that someone can be both a promoter and a detractor simultaneously.
Net Promoter 3.0:
NPS enriched with Earned Growth Rate
Now we have a tool for obtaining reliable data on customer loyalty. Let's enhance the emotional insights from the NPS metric by incorporating the growth of our referrals. The concept of the Earned Growth Rate is based on the value of referred clients. These clients contribute significantly to our current and future revenue.
This single survey question is the best predictor of top-line growth.
This conclusion is based on two years of research by the creator of NPS, who tested various survey questions by linking responses to actual customer behavior. People are willing to risk their reputation only if they truly feel loyal.
The path to sustainable, profitable growth starts with creating more promoters and fewer detractors, and making your net-promoter score transparent throughout your organization. This score is the one number you need to grow. It's simple yet profound.
Instead, focus your organizational energy on creating promoters."
— Fred Reichheld, NPS' and EGR' author.
Earned Growth Rate Formula
Already utilized in some industries, NRR is calculated by taking the current period's (e.g., month, quarter, year) revenue from existing customers and dividing it by the prior period's total revenue.
ENC represents the percentage of spending from new customers acquired through referrals, as opposed to those gained through advertising or other promotional efforts.
How to calculate Earned Growth Rate?
Our data model consists of three tables: "Sales by Customer" as the root table, and "Customer Acquisition Channels" and "Customer NPS" as related tables. Relationships between these tables are established using the "Customer Name" matching field.
How do I calculate the revenue generated from ENC?
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