Fred Reichheld developed the Net Promoter Score (NPS) as a means to measure customer loyalty more quickly and accurately.
Reichheld introduced the system in a Harvard Business Review article in 2003, explaining that simply measuring customer retention rates wasn't enough. Attracting a high number of customers serves businesses well in the short term, but loyalty is what helps companies grow exponentially in the long run. Loyal customers spread word of your business, lower new customer acquisition costs and continue using your services, even when confronted with a cheaper option.
One Question to Gauge Loyalty
NPS is based on customer surveys that ask one simple question: “Would you recommend our company to a friend or colleague?”
Businesses recently realized that HR departments could use a similar approach to NPS to gauge employee loyalty. Employee net promoter score is calculated in the same way, except HR asks the question, “How likely is it that you would recommend this company as a place to work?”
Loyalty doesn't depend on how long an employee has worked with a company, but how committed that employee is to your company’s success. Based on responses from a sample of HR professionals and employees, Workforce determined that, “loyalty includes being willing to stay through good and bad times, internalizing company goals as personal goals, and giving extra time, energy and commitment to the company when necessary.”
3 Ways Loyal Employees Impact Business
Attracting and Retaining Employees
Every HR department struggles to attract and retain top talent. Employers appear concerned in particular about the perceived difference in demands that millennials have for a workplace.
Employees are a great source for attracting new talent to your company, so keeping your existing team happy pays off in multiple ways. However, research by Elance and oDesk found that 57 percent of millennials considered long-term company loyalty to be dead.
According to a survey by the American Management Association, declining employee loyalty causes low morale (84 percent), high turnover (80 percent), disengagement (80 percent), growing distrust (76 percent) and lack of team spirit (73 percent). To guard your company against high turnover and the inability to attract talent, it’s important to keep track of employee loyalty.
Employee loyalty doesn't just impact hiring, poor employee loyalty can damage your company’s image. Sites like Glassdoor and Indeed offer employees a platform on which to air their true feelings about their employer. Fortune bases its "100 Best Companies to Work For" ranking on employee reviews of company culture.
Josh Bersin of Deloitte terms this the "ratings economy," and scoring low on these very public channels can greatly impact public confidence in your business. Companies that make it on Fortune’s list experience a 14 percent average rise in stock prices per year, compared to 6 percent in the overall market.
On the other hand, if you gain your employees’ loyalty their opinions are more likely to remain steady, even during difficult times that require more overtime without salary increases.
Employee engagement impacts your customer's NPS.
Your employees act as your brand ambassadors and, as such, if they don’t believe in your brand, customers will feel it. Creating a strong company culture that helps engage and educate your employees on company values will influence brand loyalty. Surprisingly, Gallup found only 41 percent of employees actually knew what their company stood for and how it differs from its competitors.
Recent research has shed light on the strong correlation between employee engagement and customer satisfaction. Through their studies in the airline and grocery industries, researchers Lindsay McGregor and Neel Doshi found a strong correlation, pointing to the 30 percent difference in revenue between salespeople in strong and weak company cultures.
According to Target Training International, over 60 percent of customers stop dealing with a company due to perceived indifference on the part of an employee. This figure is telling, as indifference is just what could kill employee loyalty at your company.
Check Your Employee Loyalty
Check the pulse of your employee loyalty regularly. Send out quarterly surveys asking your employees to rate on a scale of 1-10, “How likely is it that you would recommend this company as a place to work?”
Employees who answer with a nine or 10 are considered net promoters. Anyone who falls under this number is considered either a passive promoter (7-8) or detractor (0-6). Just as you do with your NPS, calculate your net employee loyalty score by subtracting the number of detractors from the number of net promoters.