The most important number you need to know in your financial practiceArticle added by Mark Mersman on August 9, 2012
Ranked: #147 (288 pts)
Recently, I interviewed Wealthnetic’s CEO Mike Walters regarding a Harvard Business Review article titled, “The One Number You Need to Grow." Mike analyzed the article and helped explain how the concepts can help financial advisors better position their firm. The following is a transcript of our conversation:
Mersman: Well, Mike, we recently had a big group of advisors in and one of the topics that was of extreme interest was that the only number that you really need to be focused on within your practice, and we refer to it as the Net Promoter Score. Can you expand a little bit on that and kind of walk everybody through exactly what the Net Promoter Score is and what it might mean to a financial services practice?
Walters: Sure. A Net Promoter Score is a really handy tool because it allows you to cut through all the BS of these long, lengthy surveys. So when someone says, “If you want to know your client, you want to know your target market, you want to identify good referral sources, good introduction sources, here’s 10, 20, 30, 40, 50 different survey questions that you should find out about these people.”
This really brings it down to simply just one.
There was a great article written years ago in the Harvard Business Review. It was titled “The One Number You Need to Grow." What you do is simply ask a question of the existing client, the potential client, the prospect, the collateral professional, whoever it might be, and the question simply goes like this: “How likely is it that you would recommend — insert your company name here — to a friend or colleague?”
And the dynamics and the psychology of what’s going on there is pretty amazing because the way the question asks or phrases
itself, you’re essentially endorsing them. You’ve got some skin in the game, so to speak. It’s not that someone’s asking you, “Who do you do business with?”
They’re saying, “Would you endorse this person?” And so when someone answers that question, it really means a lot.
Mersman: And talk a little bit about the psychology, because I know that the added part to that question is the scoring
Walters: Sure. What you want to do is create an answer probability that goes from zero to 10. So you ask them, “How likely is it that you would recommend,” and then you go from zero, being not likely at all, up to 10, being extremely likely.
And then what happens is it’s already factoring in biases. So you take nine and 10. If someone gives you a nine or a 10, that’s a promoter.
If they give you a seven or an eight, that’s a passive. Really means they’re...
Mersman: They’re kind of neutral.
Walters: Lukewarm. They’re neutral. They didn’t want to tell you that you were a four, but they’re not going to give you a 10, so they figure they could get away with giving you a seven or eight and you’re going to feel good and they’re going to be OK with that. So really it’s passive. It really doesn’t mean anything. It sounds like it’s something good, but it really isn’t, so you're going to throw it out.
And then a six through zero is actually a detractor. And so what happens is I can now ask this question in person, I can ask it on a sheet of paper at a client event, I can ask it on my website, or it can be asked anonymously. But no matter what, the system, because of the zero to 10 ranking, is kind of already accepting the bias of the human emotion.
Mersman: OK. So now, once you’ve gotten this score from a bunch of the clients, where are you taking it from there? I mean, what’s an advisor going to do from that point?
Walters: Sure. So what happens is you’re going to take the net promoter percentage — the number of people you asked and the percentage that are net promoters — and you’re going to subtract the net promoter or the net detractor percentage. And that gives you your Net Promoter Score. So we’re throwing the passives out. So what that means is the scale
actually goes from negative 100 percent to positive 100 percent. So zero is the middle.
So if you’re in positive territory, you’re doing pretty good depending on what business you’re in. If you’re in a financial practice, I would say you’re going to want to be 40, 50, 60, maybe 70 percent to be doing well on Net Promoter Score.
Mersman: Now, I know that we’ve kind of taken this one step further when we’ve talked with advisors about it. So once you’ve got your group of promoters, where are you taking that group? I mean, what types of leverage can you get from that group?
Walters: The advantage is, once I have my net promoters, now I can focus on them. I can run client events around them, and I can slice and dice. So I can say, “What percentage of my net promoters are over a certain net worth or are under a certain net worth?” “What percentage of my net promoters are located within a certain geographical area?” “What percentage of my net promoters have come aboard to my practice in the last 12 months versus the previous three years?”
Walters: So you can start to see where are the pockets? How are people perceiving you? Are they seeing you as being viable in the marketplace today versus yesterday?
What pockets are you successful with in terms of net worth or in terms of psychographics or demographic-type data?
Mersman: And it might be worth taking a look at your detractors and trying to bring them up because that may be a core group. If you thought you had a core group of folks that were in your camp and you identify that they’re detractors, it may be time to show them some love, so to speak.
Walters: Right. And the other thing is, a lot of times what’ll happen is people will spend a ton of money trying to swoon, say, a passive, and thinking they’re going to get referrals out of that passive or introductions out of that passive. The reality is they’re passive; you’re not getting any of that.
They have to be in the promoter area or you’re just spinning your wheels even trying to extract referrals from them.
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