That’s the objective of NPS. It gauges how consistently a firm turns customers into advocates, by tracking and analyzing three segments: promoters, customers who are so pleased with their experience that they recommend your brand to others; passives, customers who feel they got what they paid for but nothing more and who are not loyal assets with lasting value; and detractors, customers who are disappointed with their experience and harm the firm’s growth and reputation. Promoters give a score of 9 or 10, passives a 7 or 8, and detractors a 6 or less. To calculate your firm’s overall Net Promoter Score, you subtract the percentage of your customers who are detractors from the percentage who are promoters.

While that arithmetic might seem simplistic, the full system is intended to inspire teams to deliver experiences that are not merely satisfactory but remarkable. When customers feel cared for, they come back for more and bring their friends.

The power of customer advocacy is evidenced by the remarkable success of NPS leaders. Consider the 11 public firms highlighted in Reichheld’s most recent book, The Ultimate Question 2.0. Over the past decade their median total shareholder return was five times the U.S. median (for public companies with revenues of more than $500 million as of 2010). Those results motivated more firms to track their Net Promoter Scores—and some to report them to investors.

Unfortunately, self-reported scores and misinterpretations of the NPS framework have sown confusion and diminished its credibility. Inexperienced practitioners abused it by doing things like linking Net Promoter Scores to bonuses for frontline employees, which made them care more about their scores than about learning to better serve customers. Many firms amplify the problem by publicly reporting their scores to investors with no explanation of the process used to generate them and no safeguards to prevent pleading (“I’ll lose my job if you don’t rate me a 10”), bribery (“We’ll give you free oil changes for a 10”), and manipulation (“We never send surveys to customers whose claim was denied”). No details are provided about which customers (and how many) were surveyed, their response rates, or whether the survey was triggered by a specific transaction. Reports rarely mention whether the research was performed by a reliable third-party expert using double-blind methodology. In other words, some firms have turned Net Promoter Scores into vanity statistics that damage the credibility of NPS.

Over time we realized that the only way to make the system work better was to develop a complementary metric that drew on accounting results, not on surveys. We needed one that would illuminate the quality (and the likely profitability) of a firm’s growth. It had to be based on audited revenues from all customers, not just on a potentially biased sample of survey responses, so that it would be far more resistant to gaming, coaching, pleading, and the response biases that plague the results of non-anonymized surveys. We’re confident we’ve successfully developed that metric.

In this article we introduce earned growth as the accounting-based counterpart for the Net Promoter Score, one that will reinforce the effectiveness of NPS, providing firms with a clear, data-driven connection between customer success, repeat and expanded purchases, word-of-mouth recommendations, a positive company culture, and business results.

The Origin of Earned Growth

The superior economics of companies with high Net Promoter Scores prove that generating more promoters (assets) and fewer detractors (liabilities) drives sustainable growth. But we knew we needed to reinforce NPS in a more objective way. Even when augmented with digital signals and big-data tracking, survey scores are inherently soft. Executives (and investors) need a hard metric to which people can be held accountable.

Reichheld had his “aha!” about earned growth while studying an investor presentation slide in preparation for a keynote at First Republic Bank’s executive conference. The bank had quantified how much of its growth resulted from customers’ coming back for more—and bringing their friends. The slide showed that existing customers accounted for 50% of the growth in deposit balances, and referred customers another 32%. In other words 82% of the bank’s growth in deposits came from delivering great customer experiences. In loans 88% of growth resulted from making current customers happy.

The bank has data on referrals because it asks each new customer about the primary reason for selecting the bank and records the answer in the customer’s file. The bank’s customer accounting system automatically consolidates households with any related small businesses, so the bank can also easily see how much existing customers’ deposits and loan balances have grown. The primary reason First Republic collects this data is to prove to investors (and regulators) that its rapid growth is safe and high quality. The bank has been growing loans 15% a year in an industry that typically grows 2% to 3% a year. In many cases that would raise a red flag, since it might suggest the bank was lowering credit standards to gain share. But the data demonstrated that it was growing without adding risk. Its new business came from customers it already knew well—and from individuals referred by long-term customers.

Manuela and Stefan Kulpa are a husband-and-wife team and are fascinated by the distinct personalities of the animals they photograph and the essential connection that exists between humans and animals. Manuela & Stefan Kulpa

The presentation slide inspired Reichheld to develop a new metric, earned growth rate, which measures the revenue growth generated by returning customers and their referrals. A related statistic, the earned growth ratio, is the ratio of earned growth to total growth. That is what First Republic illustrated in its slide—82% for deposits and 88% for loans. Since the bank’s total loan growth was 15% a year, its earned growth rate in loans was 13.2%. We predict that few other banks will be able to match First Republic’s earned growth performance, but we won’t really know for sure until more banks start measuring and reporting their own earned growth statistics. We do know that the portion of new customers generated by referral at First Republic—71%—far exceeds the portion seen at its peers in retail banking (measured through Bain’s NPS Prism research), where it ranges from 21% to 53%.

In a very different industry, Warby Parker, the direct-to-consumer pioneer in prescription eyeglasses, earns almost 90% of its new customers through referrals. Warby was one of the first places where we tested the earned growth framework. The metric helped us appreciate Warby’s impressive loyalty-based growth. The company is a longtime practitioner of NPS and plans to continue using Net Promoter Scores as a key metric for internal management. But it also plans to augment its learning with earned growth.