Only one of them loves you, trusts you to buy what you recommend, buys more than the others and sings your praises to all their friends. You wish all your customers were like this but on average, they are only about 20% of your customers. They are the 80/20 rule: 80% of your profits from 20% of your customers. But what about the other 80%?
In 2003, Bain and Company created a simple numerical rating system that places your customers into one of three groups using one question:
This industry standard, used by the many of world’s largest companies and also by small companies is the Net Promoter Score (NPS) and accurately identifies your customers as either:
- Promoter: Engaged, loyal, enthusiastic customers that actively promote you.
- Passive: “Satisfied” but perceive you as indifferent. Not loyal or referring you
- Detractor: Unhappy. Negative criticism to friends. Destructive on social media.
Promoters (Score 9 or 10)
Promoters are the best 20% of your customers. They are the apostles and evangelists actively and enthusiastically praising and referring you to friends, family, colleagues, business associates. They are your engaged ideal customers who are often pleasant for your employees to do business with.
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Passives (Score 7 or 8)
Passives are just “satisfied” and are as many as 50-70% of your customers. They could easily be promoters if they “felt” that you cared about more than just their money. They believe you are “indifferent” regardless of how pleasant or satisfied they “appear.” Passives may feel held hostage. In the health or contracted professional services it might more painful to find a new provider. Is that a good relationship? Think about finding a new doctor, accountant, IT provider.
IMPORTANT: Converting just 5% of Passives can increase profits as much as 75% because Promoters buy more, more often AND there is no cost of acquisition. They are already your customers. It costs up to seven times more to acquire new customers through advertising. The probability of selling to an existing customer is 60 – 70% as opposed to 5-20% for a new prospect.
Detractors (0 to 6)
Detractors are hopefully not more than 20% of your customers and account for nearly 100% of negative reviews. The effects of their negative criticisms are far reaching. They destroy your reputation on social media and put a heavy burden on your employee’s morale. Big customers are sometimes demanding and become detractors. Their negative effects will far outweigh any profitability. Motivated detractors are actively engaged in destroying your reputation on social media and review sites.
Is NPS accurate and actionable?
Yes. NPS is a closed loop system building a roadmap of where to improve processes, people, products, pricing, etc, to and address customer’s concerns and pain points. Consistency and high response rates are key. 40% minimum for B2C and 60% for B2B. Surveying must be performed during and/or immediately after the customer experience/service when customers are most eager to reply. Non-responders are usually considered detractors.
Who should and should not use NPS?
You should if your company wishes to grow through referrals, increase growth and profits and discover any issues preventing or slowing growth. Yes, that’s every business but you should not use NPS if you can’t handle the truth from your customers because you WILL hear negative feedback from them. Bill Gates said “your unhappy customers are your best source of learning.” The upside is that you’ll get positive feedback, too. These are the things that set you apart and should focus on more.
Can you perform the NPS yourself?
Yes but there are advantages to outsourcing in addition to being cost effective for smaller companies. 72% of consumers will avoid conflict and may avoid offering negative feedback to a company member or account manager especially when surveyed face to face or on the phone. This is why a lack of feedback is not an indicator of happy customers. Your customers will speak more freely to an outside, unbiased agency making the survey more reliable.
A survey from an unbiased agency is also not a sales call, which makes the customer feel like you actually care about more than just their money.
Measuring NPS success also requires measuring against at least five core Key Performance Indicators(KPI):
- Customer Lifetime Value
- Average Order Value
- Customer Retention Rate
- Customer Churn Rate
- Customer Acquisition Cost
How is NPS implemented?
Like any strategy, you must have a tactical plan with clearly defined goals, and responsibilities such as:
- Defining your goal for implementing NPS: I.e. Improve Processes; Improve Customer Experience.
- Who will be responsible for managing the program, collecting and reporting the data?
- From the data, identify and define opportunities for improvement. Some will have higher value or be simpler to implement. It may identify training needs or process changes.
- Communication to all employees is paramount. Communicate the implementation and all successes, especially small wins. This builds goodwill and begins building a customer driven culture.
- Staying the course. Measurable results take time.
Measuring and knowing who your customers are is vital to company growth. There are other methods in addition to NPS that I will discuss in other posts. Whatever method you use, it’s crucial to remember that in order to manage or change anything, you must measure it. Customer Happiness is no exception.
How A.S.K. can help
I love what I do and am passionate about helping companies grow. I can help you find the data you need to transform “Passive” customers into Promoters. I am so sure than I can help you that I offer a money back guarantee. Let’s start with a conversation to chat about how I can help you. I’ll buy the coffee. Send me a quick note at email@example.com or call me at 617-275-2276.