Harvard Business Review calls Net Promoter Score (NPS) “the one number you need to know to grow your business”. Having had such a positive impact on Rental Express, Samantha McLean spoke to Managing Director Chris Rolls to find out how it works.
Global companies like Apple, GE, Phillips and American Express started measuring it a couple of years ago, Qantas announced in June this year they are implementing it, yet Rental Express Queensland’s largest property management company have been using it for nearly five years. So what is it, and just what effect has it had in a real estate business like Rental Express?
The one number you need to grow your business is a metric called Net Promoter Score (NPS).
In a nutshell, NPS is a simple but remarkably effective method for measuring customer loyalty. A higher NPS delivers more powerful and more vocal customer advocacy, resulting in brand referral independent of conventional marketing and promotional spend.
The Net Promoter Score (NPS) is a loyalty metric developed by Fred Reichheld, a Fellow of Bain & Co and a graduate of Harvard Business School, who is regarded as one of the top 25 business consultants in history. In Reichheld’s bestselling book The Ultimate Question, NPS is touted as the most important metric for business. It was introduced by him in a Harvard Business Review Article called “One Number You Need to Grow”.
So how does it work and what results has it delivered for Rental Express?
“The beauty of the NPS is its simplicity,” says Chris Rolls, Managing Director of Rental Express. “By calculating one score on a regular basis we can clearly measure whether the service we provide to our clients is getting better or worse, and the amazing thing is that as our NPS has improved, so has the performance of our business.”
The Net Promoter Score tracks how customers represent a company to their friends and associates. Reichheld argues that this consumer representation is free marketing which greatly influences business growth. Supporters of the method cite Apple as the company with the greatest NPS, and draw correlations to its growth.
How do you calculate the net promoter score?
Reichheld advocates asking customers, ‘How likely are you to recommend (our company) to a colleague or friend?’ His recommendation is for a 0-10 scale, where respondents are reclassified as:
0-6 = ‘Detractors’
7-8 = ‘Passives’
9-10 = ‘Promoters’
The Net Promoter Score is calculated by subtracting the percentage of respondents that are labelled ‘Detractors’ from the percentage of respondents that are labelled ‘Promoters’, like this:
% of Promoters – % of Detractors = NPS
This provides you with a single score ranging from -100 to +100.
At Rental Express the Net Promoter Score system forms an integral part of the business, and is measured across a whole range of departments. ‘We measure a quarter of our client base every quarter’ says Rolls, ‘So we end up with a score for each individual property management portfolio, for each office, for each Business Development Manager and an overall score for the entire business.’
At Rental Express, these scores form the basis of a quarterly and annual awards program for the entire team. Quarterly awards are always preceded by some sort of team building activity and the annual awards are a black tie gala dinner.
Traditionally, property management businesses measure KPIs such as arrears, maintenance, lease renewals and so on. While these more traditional KPIs are measured at Rental Express (in some cases ruthlessly), the argument that Rolls makes is that really the culmination of these traditional KPIs and how good the communication with the end client is result in a client’s overall satisfaction levels. And NPS is globally recognised as the most accurate way to measure those satisfaction levels.
The Rental Express theory is that really the only thing that matters to a property management business is how happy the clients are, and Rolls claims that with the total recognition system being based internally around NPS, it reinforces the importance that Rental Express places on customer service.
And the results are astounding. In 2007 when Rental Express first measured NPS, overall Rental Express clients scored -11. Initially horrified, they then anonymously surveyed 900 property investors that were clients of other property management companies. The result was -22.
“Over the last few years we’ve been able to grow this significantly,” says Rolls. “Our overall NPS is now +25, and the overall property management industry in SE QLD, based on a survey of 450 investors (in June 2012) is now at -17.”
“The most amazing thing is that the results of a high NPS, as predicted in Fred Reicheld’s book, have happened at Rental Express. That is, as our NPS has improved, so has our growth rate. When we first started measuring NPS our rent roll was at about 1500 properties; today it’s at nearly 4000. It’s not uncommon to sign up 800 new properties a year (gross),” says Rolls.
And the NPS system can easily be adapted to the real estate sales environment. In fact it’s perfectly suited to service-based businesses in general. It’s easy to measure, and takes the guesswork out of knowing if your team is providing a good service, which experts claim will have the single biggest impact on your long term growth. That’s why NPS is called ‘the one figure you need to know to grow your business.’