How to use Net Promoter Score to Benchmark Performance
I recently moved on in my career, from a US based software business to Newman Stewart, an executive search firm with a clear culture built on providing excellent customer service. Even though the software business ultimately sold a product not a service, the importance of regularly monitoring customer satisfaction was instilled in me, with the framework of choice being Net Promoter Score (NPS). One of the first things I did in my new role, was to implement NPS, not only as a measure of customer satisfaction, but as a way to check how we’re performing against other recruitment companies.
What is Net Promoter Score?
NPS is a management tool that can be used to gauge the loyalty of a firm’s customer relationships. It serves as an alternative to traditional customer satisfaction research and claims to be correlated with revenue growth. According to Wikipedia, more than two thirds of Fortune 1000 companies are using the metric as a gauge of customer satisfaction.
The Net Promoter Score is calculated based on responses to a single question: How likely is it that you would recommend our company/product/service to a friend or colleague? The scoring for this answer is most often based on a 0 to 10 scale.
Those who respond with a score of 9 to 10 are called Promoters, and are considered likely to exhibit value-creating behaviours, such as buying more, remaining customers for longer, and making more positive referrals to other potential customers. Those who respond with a score of 0 to 6 are labelled Detractors, and they are believed to be less likely to exhibit the value-creating behaviours. Responses of 7 and 8 are labelled Passives, and their behaviour falls between Promoters and Detractors. The Net Promoter Score is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. For purposes of calculating a Net Promoter Score, Passives count toward the total number of respondents, thus decreasing the percentage of detractors and promoters and pushing the net score toward 0.
How useful is Net Promoter Score?
Taken alone, the question ‘how likely is it that you would recommend us to a friend or colleague’ may not be a great determiner of customer satisfaction. There are people who argue that NPS isn’t a great measure of success. Where it does become interesting is when compared to other company’s NPS scores within the same industry, providing some context and a benchmark. A correlation between the high scorers and their future success has been proven. British Gas is a case in point. A few years ago, they had issues with their home heating installation unit and needed to turn the loss making business unit into a profitable one. They chose to introduce NPS and drove the process by instituting a thorough feedback process, which involved a daily NPS rating for each individual installer and sales adviser in all of its 75 districts. Their NPS increased to 75 in just two years (from a baseline of an NPS of 45). In addition, customer complaints were reduced by 75%, bad debts went down more than 90%, profit margins improved greatly, and the service grew 30%.1
Net Promoter Score as a benchmark
In our first wave of surveys, Newman Stewart scored an NPS rating of 56. This didn’t mean a lot to me and taken alone, probably doesn’t mean a lot to anyone. Given the NPS range of -100 to +100, a “positive” score or NPS above 0 is considered “good”, +50 is “Excellent,” and above 70 is considered “world class.” Based on global NPS standards, any score above 0 would be considered “good” and means that the majority of your customer base is more loyal.
I then needed to compare our score of 56 with the industry standard to get a real sense of how we’re performing. Given that our focus is on fulfilling senior and business critical roles where professionalism and high standards are a given, I expected us to score significantly higher than the industry average.
In 2017, the global recruitment industry average Net Promoter Score was 21+, a three-point drop from the average in 2016, and significantly lower than Newman Stewart’s. So as I start my journey with the company, what learnings can I take from this?
Using Net Promoter as a catalyst for improvement
Firstly, we are doing lots of things right. Based on responses so far, our customer satisfaction levels are high. We know this from our high client retention. This doesn’t mean that we can be complacent. We need to continue to exceed our customers’ expectations, drive customer loyalty and look at ways we can push that score up into the ‘world-class’ category through regular client and candidate feedback.
Companies whose NPS is higher than their competitive set tend to grow faster and enjoy greater success. Of course, the score is really a marker for the experience customers have on their journey with you, and we all know that great service, builds trust and loyal advocates who help spread the word about your business. In summary, measuring customer satisfaction, whether through NPS or some other measure, is useful, and along with other customer data, highlights where improvements in service can be made. Use your own score – and look at competitive scores – to track the success of your efforts to deliver an outstanding customer experience.