How Net Promoter and Customer Satasfaction Scores Affect Your Business
BY: EMILY SNELL ON TUESDAY, JANUARY 08, 2019
Customer satisfaction is the one factor which matters the most when it comes to driving growth.
Your highly satisfied customers exhibit loyalty behaviors like share of wallet and repurchase intent. They will also be willing to pay a premium price for your services. These all will ultimately translate into profitability.
When you keep your users happy in the long term, it also triggers brand loyalty which motivates them to recommend your brand. A study conducted by Nielson has shown that word-of-mouth recommendations from family and friends is the most influential form of advertising. More than 84% of people trust recommendations before making a purchase.
Customer happiness leads to higher customer retention, which in turn results in more referrals, less churn and lower cost of acquisition, therefore making it an unbiased long-term growth strategy.
So, how can you measure the extent of your customer happiness – long term or short term? A well-designed customer survey with the right questions can help you gauge the momentum of your brand and predict its growth trajectory.
I’m sharing two simple, yet effective approaches NPS (Net Promoter Score) and CSAT (Customer Satisfaction Score) which enable you to capture customer feedback and gain an insight into your performance.
However, a key question for customer success management is to identify which metric is better for your business?
The purpose of this blog is to address this question, and it also enables you to make the most of your customer experience.
What is Customer Satisfaction (CSAT)?
CSAT or Customer Satisfaction Score is used to assess how satisfied are the customers interacting with your products and/or services. Customers are sent surveys and asked to rate their level of happiness with one or more aspects of your business. By collecting this data you can gain an understanding into your business performance.
How is CSAT measured and calculated?
Usually, CSAT is measured by a feedback question at the end of customer feedback survey. The survey asks for the customer’s overall satisfaction with the goods/services received on a scale of 1 to 5 where:
1 – Very unsatisfied
2 – Unsatisfied
3 – Neutral
4 – Satisfied
5 – Very Satisfied
Then you can average out the results to get a composite CSAT score expressed in percentage – 100% showing complete satisfaction and 0% showing dissatisfaction.
To calculate CSAT, you need to consider the scores 4 and 5 as these are the most accurate predictor of customer retention.
So the formula for CSAT calculation is:
Total no. of satisfied customers (4 and 5)/Number of surveys x 100 = CSAT %
CSAT surveys take advantage of the fact that the customers are more likely to share their response, when they are asked in the right context. For example, when you ask customers to rate product experience after they had a chance to engage, it increases the accuracy and the response rate of the captured emotions.
If more than 70% of your customers are satisfied, it means your company is handling customers remarkably well. Whereas, if more than 70% of the respondents are dissatisfied or neutral, you may have to optimize your customer experiences.
CSAT can, however; only measure how well your customers believe your business is performing. If you are looking to a metric that can measure loyalty, NPS comes to your rescue.
What is Net Promoter Score (NPS)?
NPS is an ultimate growth metric calculated by asking customers a very simple question:
On a scale of 0 to 10, where 0 is lowest and 10 is highest, how likely are you to recommend our products or services to a friend, relative or colleague?
This is a really powerful question as per the Cognitive Dissonance Theory in psychology; as people tend to seek consistency in their actions. If an individual recommends your brand to their friends or family, it’s very likely that they will also stick to it.
How is NPS calculated?
To calculate the Net Promoter Score, three categories of respondents can be distinguished:
- Promoters (respondents giving a score of 9 or 10): They simply love your company’s products and services and will recommend your brand to potential customers.
- Passives (respondents giving a score of 7 or 8): These customers do not spread any negative word-of-mouth, but will switch easily if they find a better option.
- Detractors (respondents giving a score of 0 or 6): These users are unhappy with your service and may damage your brands reputation with negative publicity.
The formula to calculate NPS is:
Promoters – Detractors/Total No. of Responses (Promoters+ Detractors+ Passive) x 100
What is a good NPS Score?
So what should be the NPS score that you should target? Unfortunately, there is no one-size-fits-all answer, besides having a positive NPS. Depending upon your industry and business model, getting to the plus side could be your first task.
Generally, NPS below 0 would indicate that your business has to do a lot of work to improve the customer satisfaction levels. The NPS levels higher than 50, show that your company is doing great and has far more happy customers.
A NPS score of 75 or above means that your customers simply love your company and it is generating a lot of positive word-of-mouth from the customers. Thus, higher the NPS, more likely it is that the customer referrals convert into new leads and more revenue for your company.
However, all the above data is very relative and there are markets, which will never get a NPS higher than 20. And if your organization is amongst them, you may need to take numerous steps to compare your scores against your competitors:
1. Compare your NPS scores with your respective industry average.
2. Compare the NPS within a geographical area.
3. Use the baseline NPS (the NPS score must be better than your own scores in the past) as your benchmark.
Net Promoter Score vs. CSAT
When it comes to measuring customer experience you may often be in a dilemma if you should choose CSAT or NPS. While CSAT and NPS score both have their merits, but they do different jobs. While CSAT measures the user satisfaction, NPS measures their loyalty and also transforms your business.
So, while choosing NPS or CSAT, the first thing you need to consider is what exactly you want to measure and why.
- Do you want to understand what your customers think of your specific product or service? Or do you want to measure the impact of changes in your specific product or service? In this case, I would recommend using CSAT.
- Do you want to measure customer loyalty on the basis of customer perception of their end-to-end journey? Then NPS is better placed.
Why is NPS better than CSAT?
NPS is better than CSAT for a number of reasons:
- NPS acts a solid metric for predicting future growth
- Is a better indicator to measure long-term happiness
- Measures and helps you improve brand loyalty
- Helps you collect detailed feedback
- Its focused on overall experience instead of specific interactions
- Customers are more honest in their answers
What Really Matters
So, whether you measure NPS or CSAT for your company, what’s really important is what you do with those measures. These measures alone won’t tell you anything about why your customers are promoters or detractors or why you have a lower than expected CSAT score.
You need to understand what is contributing to an increase or decrease in your Net Promoter Score and actively address the issues. You can supplement these measures with qualitative research such as user testing, interviews, focus groups, etc. to understand the reasons behind the numbers. Then have actionable outcomes to address any uncovered issues. This will help you drive and optimize customer experiences with these measures to keep up with the changing customer expectations.
Which customer experience metric do you use in your company? Comment and let us know!