What is Net Promoter Score, and Why Should Realtors Care?
Over the past 4 months I’ve had the pleasure to become friends with Rob Hahn, Managing Director of 7ds Associates. Rob is by far one of the smartest most passionate people in the real estate industry. Rob suggests that one of the main reason there is no innovation in the industry and the lack of a disruptive force in the business is not because of mis-management, but instead because of a lack of data and what he calls “Management by Guessing.” (I would argue that this is simply a subsection of mismanagement.) But one of the things he suggests can make a dramatic change is collecting more data. But Rob offered up the suggestion of collecting one very specific data item that as he calls it “rules all the rest.”
This data set is called Net Promoter Score.
- First of all, what is Net Promoter Score?
Simply put, it’s the net score after taking all your company’s promoters and subtracting all its detractors. So for example let’s say in the month of May your company sold 100 homes. Of those 100 clients, 20 tell everyone they know about your company and how great it is. 70 didn’t have an amazing experience but didn’t really have a bad experience either and therefore don’t tell anyone they know about your enterprise. 10 people had a bad experience with your company and tell everyone they know not to use it.
- +20 for your promoters, 0 for your so so people, and -10 for your detractors.
Using this example you’d have a Net Promoter Score of 10.
What makes net promoter score so interesting is that this score can be calculated by asking past clients just one question “How likely are you to refer me to a friend.” The interesting thing is that is almost unheard of in the real estate industry, however it translates perfectly. Most Fortune 50 companies employ this simple technique and after use for numerous years, they have found something very interesting. It’s one of the best estimations of corporate growth there is.
The question is asked in a 0-10 survey style. 0 “I would never refer you” and 10 being “I will tell everyone I know about you.” After years of studying, they found that someone rating you a 0-6 would be considered one of the detractors. A 7 or 8 is neutral. A 9 or 10 is a promoter.
The reasoning behind this is based on the fact of human psychology. People tend to be nice when they are filling out a survey if they feel that there is any chance it might be seen by the individual they are rating. Therefore from 0-6 is all detractors. People who vote 7 or 8 generally are telling you they weren’t really unhappy but they didn’t have a WOW experience in using your comapny. The 9s are saying that it was an amazing experience but maybe just one small little thing wasn’t perfect 10s are saying holy cow it was the best experience I could have possibly hoped for and nothing went wrong.
The top question I get when explaining NPS is how can it do such a good job at measuring 5 year growth cycles. The answer is simple: the average American can see anywhere from 850-5000 ads a day depending on their activity level. As ads proliferated our daily lives, the average consumer’s trust is being pushed more and more to their friends to tell them what companies or in this case what Realtor they should be using. If someone must put their reptuation on the line to recommend someone else, they are going to be careful with that process. Therefore a recommendation is worth more than any multi-million dollar ad campaign.
The most important thing to recognize in considering NPS is what your comeptitor’s score is and compare to your own. In general industries stay fairly close together, it’s the companies that are a few points above everyone else that are the real growth plays. Some industries tend to just generally have bad experiences. Without calculating the score, I’m willing to guess that real estate sales is one of those industries. In fact, I’m also willing to bet that real estate will be one of the only fields that will turn in an industry wide net promoter score that will be negative.
Rob is making his goal to calculate a baseline for the industry. He’s offering to assist brokers in calculating this at no cost at the present time. You can contact Rob at 7DS Associates .
