If I could only choose one metric for my business, then I would choose NPS which measures customer satisfaction and I would go so far as to say that if you are not obsessing about this important number then it is hard to be customer focused.
What is customer satisfaction and how is it measured?
Customer satisfaction is a measure of how your products or services meet or surpass customer’s expectations. To measure it, you ask your customers questions about many aspects of your business performance such as fulfilment range, service, customer service etc. The most important question in this survey is the Net Promoter Score question which with one simple question – How likely are you to recommend our business to a friend or colleague? – allows you to get a clear indication of your performance through your customer’s eyes.
Customers’ respond to the NPS question giving you a score from 0-10, with 0 being the worst and 10 being the best. The score that a customer gives you allows you to group them into three categories:
- Promoters (score 9-10) are loyal to your brand and usually repeat purchase and refer others to your brand.
- Passives (score 7-8) are satisfied but unenthusiastic customers who are susceptible to switch to your competition.
- Detractors (score 0-6) are unhappy customers who will damage your brand through negative word of mouth.
To calculate your NPS, you take the percentage of customers who are Promoters and subtract the percentage who are Detractors.
Why is NPS it so important?
Bain & Company analysis shows that sustained value creators – companies that achieve long-term profitable growth – have Net Promoter Scores (NPS) two times higher than the average company.
One large company I have spoken to has their entire exec team analyse and dissect the quarterly customer satisfaction scores and build plans to improve the scores – that is customer focus!
Here are some other reasons it is important:
- Leading indicator of consumer repurchase intentions and loyalty
- Reduces customer churn – cheaper to retain customers than acquire new ones
- Increases customer lifetime value – due to more repeat purchase
- Reduces negative word of mouth – fewer detractors means fewer people being negative about your brand
Infoquest did some statistical analysis of customer satisfaction data from the findings of over 20,000 customer surveys in 40 countries and found:
- A totally satisfied customer contributes 2.6 times as much revenue to a company as a somewhat satisfied customer.
- A totally satisfied customer contributes 14 times as much revenue as a somewhat dissatisfied customer.
- Totally satisfied customers have a repurchase rate that is 3 to 10 times higher than that of “somewhat satisfied” customers.
NPS is the voice of your customer and if it is increasing then that is a huge vote of confidence from your customer base. Some business leaders I have spoken with go so far as to say that is your customer satisfaction is going up then this is a good indicator that your like-for-like sales will go up and visa versa.
Moving the dial on customer satisfaction
If you want to increase customer satisfaction then you need to prioritise actions that “move the dial” i.e. focus on actions that will make a big difference to a large number of customers. In order to do this you need to focus on actions or projects that affect a large number of customers, are important enough for the customer to notice and front line teams are measured on it.
1. Affect a large number of customers
If you have 1 million customers and focus on a project that only affects a thousand of them, even if all of those customers rate you highly, this small number of customers will not measurably increase your overall number.
2. Are important enough for the customer to notice
Many projects that are undertaken by companies actually make no difference to the customer and in some instances they do not even notice the difference. Again this will have no impact and is a waste of valuable time and effort.
3. Customer focused teams are measured on NPS
Measuring customer teams on NPS is a surefire way to keep them focused on it, I have also seen some companies that have staff bonuses linked to NPS instead of financial metrics.
SatisfACTION into action
Knowing and tracking the score is one thing but you need to create plans of action off the back of it. If you measure your NPS quarterly then this should drive your tactical plans for the following quarter. For example if your scores have been reducing due to a product ranging decision then you need to decide whether to hold your ground or make some changes. In my experience customers do not like change, even when it is a good change, and sometimes it takes time for the customer to see the positive side of change. Just look at when Facebook made a big change to their interface, there was a huge public outcry of anger, however after a few weeks customers saw that the differences were positive and it is likely that the customer satisfaction would have recovered quickly.
How do you track customer satisfaction?
There are many different ways to track customer satisfaction and NPS, the two best ways that I have used are:
1. Independent call centres
You can use an external agency to call your customers and survey them on your behalf. The advantage of this is that it is independent and by phoning a customer the agency will be able to get rich verbatims that you can use alongside your numerical scores.
2. Online survey tools
Online tools such as Customer Guage are a great way to automate customer satisfaction tracking and with clear dashboards allow the information to be shared across your business easily. The real time nature of the online dashboards allows you to react to any emerging issues quickly and turn detractors into promoters.
If you have any experiences measuring and improving customer satisfaction please post your thoughts and ideas below.