The Ultimate Question: Driving Good Profits and True Growth

Fred Reichheld was a keynote speaker at the Gartner CRM Conference that I covered last September, and he positively blew me away. His speech was on the importance of customer loyalty and how powerful that asset is to a company.

Reichheld went over how loyalty leads to repurchase, purchase of additional lines, referrals and constructive feedback. He explained how several companies used loyalty as a strategy to become leaders in their industry. Chick-fil-a, Enterprise, eBay, and Harley Davidson were featured which led to my favorite quote about how seriously a company should take customer loyalty:

"Harley Davidson doesn't measure customer retention, they measure the percentage of people with a Harley logo tatooed to parts of their body."

Awesome. His book went into more depth about the question of loyalty and I regretted waiting three months to read it. Everyone on my list who was involved in business got it as a Christmas gift this year. Here's my quick review.

The Ultimate Question, makes the claim that there are good profits and bad profits, and organizations, for too long, have been chasing the bad profits. Bad profits result from cost cutting and attempts to squeeze the last dollar out of customers. Good profits come from growth in the form of a new business recommendation or additional purchases from current clients. The problem is there’s no real way to differentiate; companies feel pressure to make profit, whether good or bad. Reichheld feels there is a better way.

Reichheld says that the way to good profits is by increasing overall customer loyalty, but until now there hasn’t been a good way to measure this. Traditional customer satisfation and retention surveys have shown little to no coorelation to actual customer behaviors. So while companies pay lip service to these surveys they’ll always act on what they can measure – accounting numbers. These numbers are accepted because they follow the Generally Accepted Accounting Pricinples (GAAP). Reichheld proposes a standardized system for measuring loyalty with the Net Promoter Score (NPS) and the Ultimate Question.

While experimenting with above customer loyalty surveys, Reichheld found that no answer really coorelated with customer action, except one, the Ultimate Question.

“How likely is it that you would recommend this company to a friend or colleague?”

Use a scale of 0-10 to grade against and you’ll have a clear picture of your business. Anyone answering 0-6 is labeled a detractor, someone who is probably bad mouthing your business and creating the greatest amount of headaches. Anyone answering, 7-8, is nuetral, neither hurting nor promoting your business. People responding 9-10 are your promoters, and best source of recurring and new business. Take the percentage of promoters minus the percentage of detractors and you have your Net Promoter Score (NPS). A simple formula:

P – D = NPS

Reichheld goes on to prove that companies with a high NPS are able to leapfrog the competition even when the odds are stacked against them. He discusses how to implement the system and combat some of the problems that arise, using real world examples of companies like Enterprise and Intuit.

The Ultimate Question is an extremely powerful concept and a book I would recommend to any decision maker looking to grow their organization. If his concept catches on, businesses will have a tool to point to as an alternative to strict financial numbers. Reichheld offers a way to grow our businesses through good profits and stop attacking customers when chasing bad profits.

Whether you purchase this book through Amazon or borrow a copy from your local library, I recommend you find a way to get your hands on this book.