EGR: How CEOs Can Tell ‘Good’ Profits From ‘Bad’
Dan Bigman
As you’ve undoubtedly guessed, the answer is: it’s none of those things. It’s actually customer loyalty, at least according to work done by Bain’s Fred Reichheld, the creator of the Net Promoter Score and bestselling author of Winning on Purpose: The Unbeatable Strategy of Loving Customers. A basket of high-NPS scoring companies he put together as an index trounces the Vanguard VTI (total market) year after year, going back more than a decade.
That’s why, in a time when growing revenues and profitability are top of mind for every CEO and board member, the ability of your management team to create real customer loyalty is the most essential strategy for success, says Reichheld.
So, how do you really know if your team is winning with customers? Reichheld, who will host an exclusive workshop on customer loyalty for Chief Executive Group on Tuesday, November 15, (please join us if you can), has studied many of the best customer-service companies in the world, including Costco, Vanguard, Apple, Intuit and others. He’s got some ideas, starting with what he calls “customer-based accounting.” It’s smart, simple and you can put it to work this year.
The essential metric, he says, is “Earned Growth Rate”—the quantification of how much of your financial growth is coming from customer loyalty—a great proxy for the ability to outperform financially without adding increased risk. You get at it by figuring two numbers:
• Net Revenue Retention, the metric most beloved by SaaS companies—recurring revenue from existing customers, plus
• Earned New Customer Revenue, “which quantifies revenues from the subset of new customers who were earned through recommendations and referrals from existing customers.”
Coming up with EGR, he writes, takes some work, but it’s hardly impossible for your CFO—and is essential for leaders looking to get beyond the boilerplate earnings readout to understand how you’re really making money. Is it through a grinding, expensive cycle of marketing, customer acquisition, dissatisfaction and churn or big, risky bets and dealmaking? (Bad profits.) Or is it by delighting customers who become your marketers, creating the truest kind of organic growth? (Good profits.)
Smart, right?
Chief Executive Group exists to improve the performance of U.S. CEOs, senior executives and public-company directors, helping you grow your companies, build your communities and strengthen society. Learn more at chiefexecutivegroup.com.
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1:00 - 5:00 pm
We are in a period of rapid change. Customer needs, technologies, competitors and internal capabilities require companies to review and update their strategies for the new realities. In this workshop, strategy experts Steve Rutan and Denise Harrison will show you a systematic approach to strategic planning to help you refine or redefine your business strategy and approach including:
2:00 - 5:00 pm
Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations.
Limited space available.
10:30 - 5:00 pm
General’s Retreat at Hermitage Golf Course
Sponsored by UBS
General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.
The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.
