How Net Promoter Score Relates to Growth

To establish the correlation between relative Net Promoter Scores and growth, Bain teams identified the relevant competitors in a business and measured the Net Promoter Score (NPS®) of each competitor using the methodology and sampling approach in NPS Prism®. These relative Net Promoter Scores were then correlated with organic growth measures, such as revenue where public data was available.

In most industries, Net Promoter Scores explained roughly 20% to 60% of the variation in organic growth rates among competitors. On average, an industry's Net Promoter leader outgrew its competitors by a factor greater than two times.

In other words, a company's NPS is a good indicator of its future growth. But the relationship is stronger in some industries than in others.

The relationship between NPS and growth is strongest when ...

The industry includes a substantial number of players, so customers have a real choice
Network effects are minimal, so customers can easily switch providers
The industry is mature, with widespread adoption and use of its products or services

In Fred Reichheld's newest book, Winning on Purpose, we take another look at the original loyalty leaders identified from The Ultimate Question 2.0 in 2011. The results are even more impressive. Compared to the Total Stock Market (using Vanguard’s VTI index as a baseline), The Ultimate Question 2.0 exemplars beat the market nearly 3x.

While loyalty—as indicated by high Net Promoter Scores and our decade-plus of research—isn't the only factor determining growth, profitable organic growth cannot long be sustained without it.

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There's another important caveat to the connection between high Net Promoter Scores and growth: A high score in and of itself is not the real objective. A high score by itself does not guarantee success. Net Promoter merely measures the quality of a company's relationships with its current customers, and high-quality relationships are a necessary but insufficient condition for profitable organic growth.

For example, HomeBanc Mortgage Corporation—which was featured in the first edition of our book, The Ultimate Question—had the highest NPS among mortgage banks at the time. But it still fell victim to the mortgage meltdown of 2007, which swept HomeBanc and many of its competitors into bankruptcy. A company must build an army of loyal customers, as HomeBanc did, but it will squander the potential they create if it can’t make effective decisions about risk, pricing, innovation, cost management, and everything else necessary for sustainable and profitable growth.