The first time a customer complained, it was easy to explain it as a single transaction gone wrong. But a few months later, there was another one, and then another. Eventually, IPower, a Phoenix-based Web-hosting company, was receiving some 15,000 phone calls a day from disgruntled customers.
How could so many people be so unhappy, wondered Thomas Gorny, the company's founder and CEO. After all, IPower had been hugely successful. By 2006, it was hosting some 400,000 websites and boasted revenue of $25 million. Now it seemed as if it was losing as many customers as it was attracting. "We know we'll mess up sometimes," Gorny says. "But we were having a hard time finding objective answers to why so many customers were unhappy." Gorny's first move was to add features and offer discounts. But the complaints kept coming. Then Gorny learned about a new, simpler approach to customer service. According to a system called Net Promoter Score, all it takes to measure and improve customer satisfaction is to ask one question: Would you be willing to recommend our product or service to a friend? If the answer is no, find out why. "Most of our business came from referrals," says Gorny, "so I had to give it a try."
Few things can kill business growth faster than lousy service. But in these days of outsourced call centers and offshore reps, few companies really understand how to do service right. Although businesses will spend an expected $36.5 billion on customer-management tools and services this year, customer happiness is at a two-year low, according to the University of Michigan's American Customer Satisfaction Index. "Many companies have forgotten that their customers are their most valuable assets," says Fred Reichheld, a veteran Bain & Co. consultant and author of the recent book The Ultimate Question. Reichheld has been studying customer loyalty for most of his 25-year career and has long been fascinated by companies like Intuit and Harley-Davidson, which possess an uncanny ability to understand--and continually improve--the way they serve customers.
With The Ultimate Question, he lays out the thinking behind his Net Promoter Score system, which Bain has been using for about three years. In essence, it's a customer survey that never has more than two questions: On a scale of 1 to 10, how likely are you to recommend us? If you would not recommend us, why not? Those who respond with nines and tens are considered "promoters"; sevens and eights are "passives"; and everyone else is a "detractor." Subtract the percentage of detractors from the promoters and you have what's called your Net Promoter Score. The number, according to Reichheld, is an almost perfect gauge of a company's reputation in the marketplace--and its ability to land both repeat business and new customers. Most companies, says Reichheld, score between 10 and 20. The best achieve scores approaching 80 and 90.
The system has proved popular with many Bain clients, including General Electric and Microsoft. But the beauty of NPS is that virtually any company, of any size, can implement it, without the help of consultants. The surveys can be administered through the mail, over the phone, and by e-mail. And unlike traditional customer satisfaction surveys, which many people find time-consuming and annoying, this one takes only moments to complete. Indeed, the system can be especially effective for smaller, growing businesses, Reichheld says. "At small, fast-growing companies, more than half of new business comes from referrals, not advertising," he says. "The fastest-growing companies I studied all had high NPS scores."
After learning about NPS in March, Gorny got started by conducting an e-mail survey of about 20,000 clients. He figured that IPower's first score would be low, but he was stunned at just how low the number was: 13. In other words, some 8,700 of the clients surveyed were detractors and probably would not recommend IPower to their friends. "It was eye-opening," Gorny says. The biggest gripe was that they could never get through to a live operator when they had a problem. Gorny didn't think twice. Within three months, he acquired another data center in Phoenix and hired 184 customer service representatives to address his customers' problems.
Gorny now polls his largest clients every three months or so. By June, IPower's NPS score had climbed to an 18 for existing customers and a promising 24 for new ones. He hopes to get his overall scores to 40 within a year. Another positive sign: Complaints have pretty much ceased.
Gorny has begun presenting the company's score at his weekly management meetings and recently hired three full-time market researchers to expand IPower's customer outreach. He has also added new servers and backups to minimize the amount of downtime on customers' websites, another complaint gleaned from the NPS surveys. Customer churn, he says, is down from about 2 percent to less than 1.5 percent per month, and he expects new customers to propel his 2006 revenue to more than $40 million. "We finally have confidence that we can keep our customers for years," he says.