NetPromoter Score for Real Estate

What is NetPromoter Score®?

NetPromoter Score (”NPS”®) is a simple, yet deceptively powerful, tool for measuring customer loyalty to a brand, a company, a product, or a service. First developed by Fred Reichheld, the founder of Bain & Company’s Loyalty practice group, in the book The Ultimate Question, NPS is linked to growth and longterm profitability:

The key: one simple question that tracks promoters and detractors and produces a clear, easy-to-understand measure of an organization’s performance in its customers’ eyes. Bain & Company analysis shows that sustained value creators—companies that achieve long-term profitable growth—have Net Promoter Scores two times higher than the average company. And NPS (SM)leaders outgrow their competitors in most industries—by an average of 2.5 times.

NPS is in use by hundreds of companies worldwide, including such companies as GE, Apple, Verizon Wireless, and others. [NOTE: NetPromoter Score® and NPS® are both registered trademarks of Satmetrix, Bain & Co., and Fred Reichheld.]

NPS works quite simply by asking a single question: “How likely are you to recommend XYZ to a friend or colleague?” where XYZ is a company, a product, a service, or whatever. The responses are collected on a 0-10 scale where 0 is “Extremely unlikely” and 10 is “Extremely likely”. Someone giving a score of 9-10 is considered a Promoter, score of 7-8 is considered Neutral (or Fence Sitter), and score of 0-6 is considered a Detractor. NetPromoter Score is simply the percentage of Promoters less the percentage of Detractors. The graphic above is a clear illustration.

For example, suppose you survey 1,000 past clients with the question, “How likely are you to recommend our agents to your friends?” 250 answer 9 or 10 (Promoters); 600 answer 7 or 8 (Neutral); and 150 answer from 0-6 (Detractors). Your NPS is 25% – 15% = 10%. This is not, by the way, a good score — you will likely want to find out why your NPS is so low and start looking at ways to improve your customer service experience.

Given that the central question of NPS is “Would you recommend me to a friend?”, one would think that NPS is almost tailor-made for the real estate industry where referrals from past clients drive so much business. And yet, preliminary research by 7DS Associates has uncovered not a single major residential real estate company that regularly utilizes NPS.

We believe that NetPromoter Score is the ideal metric for customer loyalty for real estate. The biggest reason is its simplicity. While there are some criticisms of NPS, the alternative tools for ascertaining customer loyalty (such as American Customer Satisfaction Index^TM) tend to be complex, time-consuming, and expensive to use. Reviewing some of the academic literature arguing against the NPS shows that even with flaws, NPS can be extremely useful:

Most studies investigated the relationship between Net-Promoter score and
business performance at the macro-level of companies. However, the initial studies by Reichheld (2003, 2006) were at the level of individual behavior. When investigating the relationship between individual intentions to recommend and variables such as purchases or recommendations, his findings have replicated well and the Net-Promoter score did emerge as a good measurement for customer loyalty.

Combined with the utter simplicity of NPS, we believe that it is the best methodology for most real estate companies, since most of them lack the kind of marketing departments, discipline, and budgets to conduct truly scientific customer loyalty studies.

The second reason for NPS in real estate is the particular condition of the real estate industry: the seven year purchase cycle. Unlike other industries, where customer loyalty leads to frequent purchases, real estate customers enter the market for a few months, then disappear for an average of seven years. Relying on repeat business is a good way to go bankrupt. Referrals, however, happen all the time, and may be considered as the best measure of overall strength of brand/reputation. Indeed, in our view, NPS may be the best measure of overall competence and quality of brokerage operations.

For more information on NetPromoter Score, links to resources, and other 7DS thoughts and findings on NPS in real estate, please bookmark this page as well as our blog. We will be updating both regularly.

The 7DS Real Estate NetPromoter Score Study

7DS Associates has decided to undertake a study of NPS in the real estate industry, and invite you and your organization to participate. There is no cost to participate, and participation is simple. All participants will be provided both their specific NetPromoter Score, as well as a copy of the Real Estate NPS Study once it is completed.

The study itself is as simple as NPS is. We have created two short surveys: one for participants, and one for their clients.

The Participant Survey is designed for real estate agents, and gathers some basic demographic information about the agent whose NPS is being calculated, including years in real estate, level of education, and technological sophistication. No personally identifiable information is collected, except for the purpose of sending the participating Agent his or her NetPromoter Score.

The Customer Survey is a short, five-question survey designed to be sent to past clients and individual real estate customers. Our intent is to have the Participating Agent send the survey directly to his/her clients over the past two years; this way, we are never in possession of any client data, emails, and the like. No personally identifiable information is collected from the Customers at all.

If you would like to participate in the 7DS Real Estate NPS Study, please email us at nps – at – 7dsassociates – dot – com, or fill out the Contact Form.

NetPromoter Score Links & Resources

This is a continually updated section on books, resources, and links about NetPromoter Score — including criticisms of NPS. Please let us know if you know of a resource you don’t see below.

Books & Publications

The Ultimate Question, a book by Fred Reichheld. This is the book that began it all.

Answering the Ultimate Question, a book by Richard Owen & Laura Brooks.

Measuring Customer Satisfaction and Loyalty: Improving the ‘Net-Promoter’ Score (PDF) – A technical paper by Daniel Schneider of Stanford University, Matt Berent of Intuit, Randall Thomas of Harris Interactive, and Jon Krosnick of Stanford University that criticizes NPS, but nonetheless validates some key aspects.

A Longitudinal Examination of Net Promoter and Firm Revenue Growth (PDF) – A very serious criticism of NPS methodology by respected academics and professionals: Timothy L. Keiningham, Bruce Cooil, Tor Wallin Andreassen, & Lerzan Aksoy. Nonetheless shows some interesting facts in support of NPS, such as the fact that NPS is not seriously inaccurate as compared to ACSI (See, e.g., Figure 1).

Websites & Links

NetPromoter Official Site managed by Satmetrix

NetPromoter Blogs — blogs by people like Fred Reichheld, Richard Owen, Laura Brooks, and others.

NPS (Net Promoter Score) Criticisms and Best Practices – A good overview of the criticisms of NPS on Vovici.

Word of Mouth Communications Study Blog Posts on NPS – A blog maintained by Walter Carl, an Assistant Professor in the Department of Communication Studies at Northeastern University with a joint appointment in the College of Business Administration, an Advisory Board Member for the Word of Mouth Marketing Association (WOMMA), and founder and Chief Research Officer at ChatThreads Corp.

Get Customers to Sell for You – a CNN/Money article on NPS

Net Promoter Debate – Over at Attentio blog; really interesting back and forth in the comments here from some of the heaviest of heavies in market research circles.

Net Promoter Score: an operational tool to measure customer satisfaction – A great blogpost detailing NPS, how to deploy it, and some real-life experience with NPS.