What is Earned Growth Rate (EGR) and why is it so powerful?
With high NPS and ENPS numbers driving referrals and retention, there is also a simple way to measure their ultimate impact on revenues.
Frederic Reicheld, who invented the NPS system, has recently developed a revenue metric that is called Earned Growth Rate (EGR). This is a combination of two elements: Net Revenue Retention (NRR) and Earned New Customers (ENC).
Net Revenue Retention (NRR) simply measures this year’s revenues from customers who were with you last year, divided by last year’s total revenues.
NRR (%) = Current Year Revenue from Retained Customers from Previous Year ÷ Previous Year’s Total Revenues
This tells you if you’re expanding your existing customers’ spending, or if existing customer spending is contracting.
Expressed as a percentage result which you can track over time, NRR is a bellwether of retention; more spending per customer = increased revenue and retention.
The second element, Earned New Customers (ENC), is the percentage of spending from new customers generated by referrals versus the percentage generated from bought customers. This not only helps you calculate your Earned Growth Rate (EGR), but also allows you to qualify your customer acquisition spend and justify investments in delighting current customers.
When we illuminate which customer segments and acquisition channels represent the best investment, invariably “bought leads” turn out to be far more costly than referred leads.
FACT: Sales conversions and lifetime value are significantly higher among referrals versus bought leads.
To prove this out, it is critical to ask all leads the primary reason for their enquiry, on the day. The importance of this question is often overlooked or underappreciated by salespeople. The truth is, the better the intel they secure from the lead on the source of their enquiry, the more they can help your marketing team tune up their efforts and in turn generate higher quality leads for the sales team themselves.
When referrals are tracked diligently, we can prove this phenomenon out and justify increased focus, attention, and resources on delighting customers and leveraging Promoters.
Once you have established these two important numbers, you can then determine Earned Growth Rate. To do that, you simply add Net Revenue Retention (NRR) and Earned New Customers (ENC) together and then subtract 100%.
EGR (%) = (NRR + ENC) – 100%
As is the case with NPS and ENPS numbers, Earned Growth Rate (EGR) is most relevant in comparing same location sales over time. Even though many companies want to benchmark themselves against their competitors, or industry averages, these numbers most importantly reflect trends within your business and provide early insights into shifts taking place at your various locations.
That said, it is entirely valid to compare these metrics across your locations and this will help define and refine best practices among your sites. Even though there are a huge number of factors affecting each location’s performance, as explained in “The Affinity Principle”,
the engagement of your team and happiness of your customers will more significantly influence Earned Growth Rate than many other economic or environmental factors.