One Question Reveals How Much Your Customers Love You
What is NPS?
NPS is an industry standard customer experience score established in 2003 by Bain and Company. The results of one question divide your customers into three categories:
1. Promoter: Engaged, loyal, enthusiastic customers that actively promote you
2. Passive: “Satisfied” but easily taken by competitors. Not loyal or referring you
3. Detractor: Unhappy. Negative criticism to friends and on social media. Destructive.
Why is NPS so important to profitability?
According to Bain & Company, “companies that achieve long-term profitable growth have an NPS two times higher than the average company. And NPS leaders on average grow at more than twice the rate of competitors.”
NPS categorizes customers based on their answer to one ultimate question: How likely is it that you would recommend us to a friend?
Profitability increases because the probability of selling to an existing customer is 60 – 70% as opposed to 5-20% for a new prospect. It also costs up to seven times more to acquire new customers through advertising.
How Does Scoring Work
Net Promoter Score was designed to be a simple way for companies to regularly measure overall satisfaction and customer experience of the whole company or any aspect such as a business unit, customer segment, product, store, service, customer-service team, etc.
It is simply the percentage of promoters minus the percentage of detractors with a simple focus on creating more promoters and fewer detractors. In other words, it’s a customer experience and satisfaction balance sheet that helps drive customer driven growth.
Promoters (9 or 10)
Promoters are responsible for 80% of your referrals! Think of them as apostles actively and enthusiastically praising you to friends, family, colleagues, business associates. You want more of these customers who are usually very pleasant for your employees to do business with. Promoters often fall into the 80/20 rule: they are 20% of your company’s customers and 80% of your profits. A mere 5% increase can increase profits 25-95%.
Passives (7 or 8)
Passives could be promoters and are as much as 60-70% of your customers. Passive customers could be “satisfied” simply because it would be harder or more painful to find a new vendor/provider. Their repurchase and referral rates are as much as 50 percent lower than those of promoters and can be easily wooed away by something as simple as a competitor’s advertisement. Passives believe you are indifferent and care only about their money. Improve relationships with this pool by just 5% and your profits begin to soar.
Detractors (0 to 6)
Detractors are unhappy customers and account for more than 80% of negative word-of-mouth. The effect of their negative criticisms on your reputation, especially on social media and the burden they put on your employee’s morale can far outweigh any profitability. Motivated detractors can be actively engaged in destroying your reputation on social media and review sites.
How do you use NPS?
Since NPS is an easy way to measure any aspect of your operations, it provides a closed loop to learn where you can improve processes, people, products, pricing etc, for the long term. Gathering the score includes using an open-ended question, plus one or two more to literarily hear the “Voice of the Customer” (VOC) for feedback in their own words. This is for everyone in your company to hear. This starts your roadmap to addressing customer concerns and customer driven growth.
There are other Key Performance Indicators (KPI) that you must measure to validate the results of using NPS. You may already be measuring KPI’s such as:
- Customer Lifetime Value (should increase)
- Average Order Value (should increase)
- Customer Retention Rate (should increase)
- Customer Churn Rate (should decrease)
- Customer Acquisition Cost (should decrease)
Is NPS accurate and actionable?
Consistency and high response rates are key. Your core, target customers provide the most accurate scores. For responses, use a 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. Professional and contracted services benefit from ongoing calls at set intervals. Surveying influencers and decision makers is also key. Non-responders are usually considered detractors.
Who should use NPS?
Any company, organization or individuals, that wishes to grow by increasing referrals and sales from their current customers and discover any issues preventing or hampering it. You must be committed to improving customer relationships, prepared to hear negative feedback and then take action.
Note: A Harvard Business Study showed that “80% of companies believe they provide excellent service while only 8% of their customers agree.” A lack of customer feedback is not an indicator of customer satisfaction. edback and then take action.
Can you perform the NPS surveys yourself?
The short answer is yes and companies with enough resources do. However, 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 may even be embarrassing for them. This is why a lack of feedback is not an indicator of happy customers.
Also, a member of your company may “game” the survey and call only happy customers, especially if bonuses are linked to NPS.
Your customers will speak more freely to an outside, unbiased agency making the survey far 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.
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.
How A.S.K. can help
I love what I do and am passionate about helping companies grow through customer driven growth. 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 firstname.lastname@example.org or call me at 617-275-2276.