How to Measure Customer Loyalty

Entrepreneurs are in the business of selling something, whether it’s a product or service, which means you can’t afford to ignore customer satisfaction. In order to understand how customer satisfaction impacts your business, you have to measure it, and this is where most companies begin wandering off into unhelpful territory. If you want a real (and perhaps very sobering) view of customer satisfaction, read on.

Frederick F. Reichheld is a customer loyalty guru and a Fellow at global management consulting firm Bain & Company who cracked this difficult nut in his Harvard Business Review article, The One Number You Need to Grow. What he lays out is a very compelling case for what question you should be asking your customers, the scale you use to measure it, and the way you interpret the results. 

Every company wants to see great customer satisfaction scores, which inevitably leads them to include people who are only barely satisfied in their count of those who are satisfied. This simply isn’t helpful because those barely satisfied customers are highly likely to switch to a competitor and aren’t serving as brand ambassadors. Reichheld argues you have to begin by asking the right question, which is this: “How likely is it that you would recommend [company X] to a friend or colleague?” That’s it – that’s the only question you need to ask because it gets at the key customer-related driver of growth and profitability, which is customer loyalty, not satisfaction per se. Your most loyal customers are those who are willing to recommend your company to others.

Now comes the response categories, and the recommendation here is to use an eleven-point scale numbered zero to ten, where zero is the negative end of the scale (not at all likely to recommend) and ten is the positive end of the scale (extremely likely to recommend). People intuitively understand this kind of scale. The zero is obvious, and then respondents are left with a ten-point scale, and people rank things out of ten all the time. It’s easy and intuitive. 

Then comes the part where you interpret the results. Keep in mind there are two goals here: To identify the people who are your most enthusiastic, loyal brand ambassadors and to avoid the grade-inflation that makes most measurement attempts worthless. Reichheld argues for grouping respondents into three categories. Those who give answers of nine or ten are the gold standard. They are your active promoters. You want all your customers in this category. Those who give a seven or eight are passively satisfied, so while you benefit from them purchasing your product or service, they aren’t actively engaged in promoting your brand. Everyone who gives a six or lower are interpreted as detractors. They are not only likely to switch to competitors but might even be angry and actively working against your company.

The one number you need to grow is your net-promoters score – the percentage of your customers who are promoters minus the percentage of customers who are detractors. When you find ways to increase your net-promoter by simultaneously reducing the number of detractors and increasing the number promoters, your company will grow. 

If you’d like a more detailed treatment of this topic beyond the HBR article mentioned above, you might be interested in Reichholds related book, The Ultimate Question 2.0.