Quantifying customer relationships.

Fred Reichheld says your company is about to stop making money. Unless you start measuring success by more than just making money.

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In The Ultimate Question, Reichheld urges business owners to rate their success as much by customer satisfaction as they do profits. Reichheld's "ultimate question" determines a measure of customer loyalty that he believes is a strong indicator of how your customers will behave in the future. Ask them his question, and not only will you understand customers' current attitudes, you can determine whether they are likely to continue to buy from you and whether they might become marketers for your firm.

Reichheld believes businesses should do away with customer satisfaction surveys and ask their customers simply, "How likely is it that you would recommend this company to a friend or colleague?" With answers to that one question scaled from one to ten, he says you can divide your customers into three groups: detractors (who would not recommend your company and spread negative word of mouth), neutrals (who would say nothing of you) and promoters (who would recommend you).

After segmenting their customer base in this way, companies can define a single metric to describe how well they are pleasing their customers. Reichheld calls it the Net Promoter Score (NPS), which is found by subtracting the total number of detractors from the total number of promoters. The better your NPS, the more unpaid marketers you have.

Through extensive data collection, Reichheld's research group claims to have discovered a statistically significant link between the NPS and company growth. But determining causation through statistics is a difficult task, the likes of which most of us are not qualified to undertake. Fortunately, it's easy to believe Reichheld's assertions on the face of things, without the statistical basis he painstakingly lays out in the first 100 pages of his book. Do you believe that customers extolling your company's virtues to their friends, family and colleagues could benefit sales and lead to growth? If you answer yes, proceed. If not, discard this book.

The second half of The Ultimate Question assumes you're keen on the relationship between NPS and company growth and moves on to help you use it to gather actionable information from your customers. While Reichheld spends the first half of his book trying to establish the hard science of tallying the NPS and determining its causal relationship with increased sales, he spends the latter half offering vague tips on how to help his readers improve their customer relationships, from making your frontline employees promoters themselves to developing customer communities and listening closely to customer complaints. This all may be helpful in theory, but it doesn't offer the everyday metalcaster practical ways to add value to his or her products.

About two thirds of the way through his book, Reichheld inadvertently speaks directly to metalcasters. "Many managers claim that they can't design value propositions for targeted segments, because their industry is just a commodity business. What they are really saying is that they have failed to uncover innovative solutions for their customers."

Such innovative solutions would be the key to making more promoters of your clients, but the author doesn't go so far as to tell you how to come up with innovative solutions. If that's what you're looking for, you're reading the wrong book. As he says just a few pages previous, "there's no shortcut" in moving customers from detractors or neutrals to promoters.

Reichheld says you must simply listen to your customer in order to determine the value-added direction in which to take your firm. And while this may have some merit, it's not going to change your business model overnight.

Unwittingly, Reichheld quotes a business executive who undermines the project of collecting data through customer feedback questionnaires (Reichheld avoids the word "survey," which he likens to lengthy tomes gathering information on satisfaction).

"We have too many surveys, and they are too long," says Intuit cofounder Scott Cook. "What we really need is more managers talking directly with their customers listening carefully and then responding to their feedback. Sending out more surveys may provide the illusion of customer focus, but this is usually a cop-out for senior managers unwilling to spend face-to-face time with customers."

Reichheld uses the quote to drive home the point that your requests for customer feedback should be short and to the point, but for small businesses, the quote seems to suggest that gathering information in the way the author intends is probably just as misguided as passing out two-page surveys to your customers. Instead, simply get out there and determine whether your customers are really promoters or detractors.

Reichheld consistently singles out consumer companies in his book, and for good reason. They need more attention; it's much harder for those companies to follow up on his suggestions. However, while consumer-focused businesses might have millions of customers, most metalcasters have far fewer. They can therefore readily have open and candid conversations with those customers, finding out which way they would like to see the company drive its business innovation to make them a more likely candidate to be a promoter.

Reichheld's message is a good one, but you may not need his book to reap its benefits.

Shea Gibbs, Associate Editor