For many years the old adage of “what gets measured, gets done/delivered” has been bandied around more times than most of us can remember.
The question however that many of us fail to consider enough is do the things we measure actually deliver the desired outcomes? Do our key Performance Indicators (KPI’s) bring about the right behaviours, the right actions and ultimately the right results?
Measures, Measures & Yet More Measures…..
In today’s ever more competitive environment it has become increasingly common for businesses of all shapes and sizes to spend countless hours building detailed measurement systems (KPI’s) to analyse the operational effectiveness and efficiencies within their respective organisations.
Indeed, the more sophisticated and better resourced organisations amongst us have built complex management information systems (MIS) that track not only financial metrics but also operational metrics, along with organisational capacity or learning metrics.
Internally Vs Externally Focused Metrics
Not-withstanding the importance and many benefits of tracking the aforementioned metrics they all tend to be very internally focused.
Today’s more successful organisations have for some time recognised the need to be much more “customer centric”. For many this has seen them invest in understanding basic externally focused metrics such as customer satisfaction.
Are Satisfaction Metrics Enough?
Whilst there has been a strong rise over the last 10 years in the number of organisations that measure customer satisfaction there remain some considerable challenges for these organisations. Most of them invest in these activities infrequently and the results typically focus on the customer’s perception of a singular interaction or purchase.
NPS – the Killer KPI
Net Promoter Score (NPS) has in recent times become the “Killer KPI” that is trusted by the biggest companies in the world alongside start-ups that have equally raised millions in venture financing.
More importantly still – diligent buyers of organisations, be they private equity, venture capitalists or trade buyers, are understandably increasingly fixated by the seller’s NPS score.
What’s different about NPS?
At its heart the Net Promoter Score (NPS) is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others.
NPS is very different from more traditional customer satisfaction or customer effort benchmarks, in that it measures a customer's overall sentiment about a brand, versus their thoughts around a one-off interaction or purchase.
Today’s brand champions and market-leading firms have therefore woken up and are investing heavily and more importantly consistently in measuring their Net Promoter Score (NPS).
The Key question however is WHY?
The Benefits of Measuring NPS
The benefits of measuring NPS consistently are without a doubt multiple. The top 5 benefits are a follows;
1. Growth Rates
Multiple surveys have shown that organisations with a high NPS score consistently outperform their competitors and experience far greater rates of growth.
Management consulting firm BAIN & Co found that on average, the leader in an industry typically has a Net Promoter Score more than double that of its competitors. In the same research they found that for most industries, the Net Promoter Score accounts for 20% to 60% of a company’s organic growth rate.
2. Increased Profitability
By understanding how “loyal” customers actually are, it helps driven organisations evaluate the likelihood of customer churn.
It has long been recognised that is it significantly cheaper to retain an existing customer than to acquire a new one.
Research from Bain & Company found that an increase in customer retention of only 5% can increase profits between 25%-95%. So, while you want to attract and convert new customers, retaining and empowering existing customers typically has a much higher ROI.
3. Increased Marketing Efficiencies & Effectiveness
As well providing a vital measure of customer loyalty, NPS also provides a valuable insight into “customer quality” and in turn allows successful organisations to increase the effectiveness of their marketing whilst reducing their average cost per acquisition and increasing customer lifetime value.
Ensuring that the organisation is building a “high quality” customer base is vital as “A Grade” clients are the ones that consistently take on the mantle of “brand advocates” and are widely regarded as an organisation’s “referral machine”.
Studies regularly show that 80% of happy customers are willing to provide recommendations and referred customers typically have a 16% higher lifetime value and a greater ROI than others. Equally “word of mouth” continues to play a massive part in purchasing decisions with over
92% of consumers reporting that they trust family and friends above all other forms of advertising.
4. Product/ Service Improvement
When you sell any product or service, collecting customer feedback is imperative. Indeed - the most successful organisations using NPS have an unswerving commitment to focusing on the “Detractors” in order to bring about consistent improvements.
By interrogating the negative scores (0-6) and then asking a qualitative question about their score they are able to both learn quicker and respond quicker to product/service shortfalls and in so-doing enhance scores going forwards.
5. A Common Goal
By setting-out an “over-arching objective” of increasing their NPS Score across their entire workforce today’s most successful organisations enable their employees to engage around a “shared vision” and a “common goal”. Individual functions within the organisation can then devise their “plan of action” to ensure that they play their part in the achievement of the company’s overall plan to increase its NPS Score.
Much is made today of falling levels of employee engagement but it is clear that the world’s most successful organisations have a strong alignment between their vision and their staff. NPS is increasingly the “glue” that brings about the “winning team” that underpins that “winning organisation”.
So How Do You Measure NPS?
The beauty of NPS lies in its simplicity and how easy it is for organisations to adopt.
Customers are surveyed on one single question. They are asked to rate on an 11-point scale the likelihood of recommending the company or brand to a friend or colleague.
“On a scale of 0 to 10, how likely are you to recommend this company’s product or service to a friend or a colleague?”
Based on their rating, customers are then classified in 3 categories: Detractors, Passives and Promoters.
‘Detractors’ gave a score lower or equal to 6. They are not particularly thrilled by the product or the service. They, with all likelihood, won’t purchase again from the company, could potentially damage the company’s reputation through negative word of mouth.
Passives’ gave a score of 7 or 8. They are somewhat satisfied but could easily switch to a competitor’s offering if given the opportunity. They probably wouldn’t spread any negative word-of-mouth, but are not enthusiastic enough about your products or services to actually promote them.
'Promoters’ answered 9 or 10. They love the company’s products and services. They are the repeat buyers, are the enthusiastic evangelist who recommends the company products and services to other potential buyers.
The Net Promoter Score (NPS) is calculated by subtracting the percentage of customers who are detractors from the percentage that are promoters. What is generated is a score between -100 and 100 called the Net Promoter Score.
At one end of the spectrum, if when surveyed, all of the customers gave a score lower or equal to 6, this would lead to a NPS of -100. On the other end of the spectrum, if all of the customers were answering the question with a 9 or 10, then the total Net Promoter Score would be 100.
What’s A Good NPS score?
A recent survey by Marketing Week magazine found that only 10% of UK brands had a net promoter score (NPS) of 40 or more.
Insurer NFU Mutual (70) is the company with the highest NPS in the UK. This was followed by First Direct (63), Volvo (49), Netflix (49) and Amazon (44).
Moreover many well-known brands recorded negative NPS scores. Scores in the banking sector ranged from an NPS of -21 at the bottom to 63 for First Direct at the top. Similarly in the airline sector the spread ran from -44 at the bottom to 38 at the top for Virgin Atlantic.
Consistency & Commitment
The benefits of investing in NPS are undeniable BUT experience has shown that calculating an organisation’s Net Promoter Score every now and then is simply not enough in itself to bring about any longstanding value.
The entire organisation needs to live and breathe its NPS Score. It needs to be a company-wide effort.
The power of the Net Promoter Score lies in its simplicity but unless a business dissects the data and figures out the root causes of its detractors’ experiences or the factors of the success that turned simple customers into promoters, it will miss out on a recipe for future growth, profitability and sustainability.
In summary - It is essential for a company’s leadership to seek out the “whys” behind the data and to adapt and evolve accordingly.
If you’d like to find out more about how we help successful organisations build their Net Promoter Score and realise all the benefits of increased growth rates, increased profitability, increased customer loyalty - get in touch today by clicking here