Net Promoters Are Worth Diddly-Squat

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It’s 2011. You would think that the biggest management consulting snake oil offering from the first decade of the century — the Net Promoter Score — would have run its course by now.

But no, the Net Promoter Syndrome Sufferers, god bless ’em, keep it alive.

I can’t rehash all the arguments why NPS is so flawed. There’s simply too many of them. But what I can do in this post is explain to you why your beloved Net Promoters are completely worthless to you.

The reason is rooted in the concept of realized versus unrealized value.

The following is a true story, with the names changed to protect the clueless losers (translation: me):

Imagine that it’s 2001, and you hold stock options for 10,000 shares in a company called Colonial Research, but that those options don’t mature until 2004. When you receive the options, the strike price is $15. Colonial is currently selling for $80 per share. What are those options worth?

Well, if you’re a clueless loser, you figure that, at a profit of $65/share, they’re worth $650,000 (somebody check my math, will ya?).

Roll the clock forward to 2004. Colonial now sells for $10/share. Now how much are your options worth?

Here’s my point: Having a set of customers who say — at a particular point in time — that they’re somewhat or even very likely to refer your company to their friends and family is completely worthless unless they actually refer your company to their friends and family.

Unrealized value isn’t value.

Your customers’ attitudes and intentions are all very well and nice. But only their behavior matters. If they intend to buy and don’t, then the intention is useless. If they intend to provide referrals, but don’t, that intention is useless.

Now here’s something that I’m going to guess about, because I don’t know this for a fact (and quite frankly, am not about to waste my time researching): I bet that a pretty large percentage — I’d guess between 40% and 60% — of firms that track Net Promoter Score don’t track actual referrals.

And even among the firms that do track referrals, because Net Promoter methodology relies on sampling the customer base, there’s no way for them to tell whether or not the customer who is referring is a Net Promoter or not.

At the heart of this argument is a belief that tracking and measuring behavior is far more valuable than tracking and measuring intentions. And a belief that measuring customer engagement — however your firm wants to define it — is important for understanding what non-purchase behaviors are most closely tied to, and correlated with, purchase behaviors.

And so if you want to define the metrics that really matter for your organization, I’d argue that you need to measure actual customer referrals, and not referral intention.

Another argument I’ve had with various folks in the past concerns the cost of measurement. I’ve estimated that a firm measuring Net Promoter Score probably spends anywhere from $50k to $100k (or more if it’s a really large firm) just to calculate its NPS. The folks on the other side of the argument claim its a lot less, but with consulting firms, technology providers, and at least one CUSO that I know of, offering NPS services, I don’t see how they could be providing those services for less than $50k, or at least $25k.

So what’s your excuse for not spending $5k to $15k to track actual referrals? I picked those price points because that’s what Geezeo told me that the typical annual investment for their Referral Engine is in that range.

Stop wasting your time measuring stuff that doesn’t matter. Not only are your Net Promoters worthless to you, but the fact that you’re spending money to figure out how many you have is throwing money away.

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