You may not have heard of the Net Promoter Score. When I first heard of it, I was introduced to it in a way where people were bragging about having a 76, or an 82. I thought, isn’t a 76% a C-grade result? As in just average? What about 82%? That’s like B-minus work, right? How can people be so proud of average to middling results?
Companies are, (and should be) proud of those scores because Net Promoter is not measuring customer satisfaction. NPS measures the strength of word of mouth for a business, and that is hard to generate. Extremely hard.
Net Promoter Score (which sounds like the score for a network of concert promoters) is a powerful measure of how consumers talk about their experience of working with your company to their friends and family. But NPS is not only for business owners. NPS is a tool consumers can use to rapidly evaluate the reputation of a company. It means, with one number, you can assess the reputation of a company and decide who you can trust to work with.
I look for NPS scores wherever they are available, and I am wary of companies that do not provide them.
While I don’t expect companies to be perfect, I know that it’s easy to hide upset customers inside customer satisfaction survey numbers. Here’s how it’s done.
Why Customer Satisfaction Scores Can Be Misleading
My wife drives a Toyota Highlander. She loves that car. I love that car. We both hate buying Toyotas. Why? Because Toyota apparently does not want to know what their customers think of their product or service. When you buy a Toyota, or any brand of car from Toyota, you will receive a call from a sales manager hounding you to rate them 10 out of 10 on their customer service survey. (I do not think they are unique in this, but they are the most insistent I have seen). Anything less than perfect is a failure they will tell you.
Never has anyone asked me how I felt about the experience, they just plead with me to give them a perfect rating so they can get their bonus. I cannot imagine that Toyota executives are unaware of this behavior. Since I have personal experience with this going back over 10 years, I believe they must be well aware of it. Wells Fargo for example, had employees calling their ethics hotline for over a decade about their sales problems according to Simon Sinek in his book the Infinite Game. (Sinek, 2020). Executives were aware of their problems but didn’t want to know. When I worked at Motorola I got in some trouble for pleading with the marketing team to stop sending out customer surveys. Why? Because we never did anything with the results. We were just pissing off our customers by asking them over and over again what they wanted and then never following up or making any changes. Far too often customer satisfaction can be manipulated.
Even if management is not trying to manipulate the results, I still look at “customer satisfaction” scores with a skeptical eye. Written reviews are better, but reading a slew of them can be time consuming. I also wonder how genuine they are. For example, when there are only positive reviews… that can look suspicious. Who is perfect? And then there are the ugly cases where someone tries to take out a vendetta on a business. Ask any small business owner about Yelp. Most tend to roll their eyes in frustration. (It has been my experience that Yelp suppresses positive reviews but publishes negative reviews instantly). Even if you feel what Yelp is doing is fair, or you like Google reviews, or Facebook reviews all of these “star” based systems that use simple averaging miss a crucial point.
Human beings react very differently to positive vs negative experiences. Nobel Prize Winning Economist Daniel Kahneman (Kahneman, 2011) demonstrated that people are twice as sensitive to loss as they are to gain. Put another way, if a business upsets 1 in 10 customers, they could still report a customer satisfaction rating of 90% – an A-Grade. While from a math point of view, that might sound reasonable, the reality is that this one upset customer is way more upset than their score would indicate. The math is misleading. Put another way, how much risk are you willing to take that your experience could be as bad as the unhappy guys? This is much closer to the question we are trying to answer. People are driven much more by loss aversion than positive gain.
Averaging customer satisfaction can be as misleading as trying to manipulation customers into giving perfect scores. This is where Net Promoter Comes in. Net Promoter Scores reflect the way people actually share their experiences with each other. We don’t relay all experiences equally. We are much more likely to tell the story of a bad experience… over, and over, and over again. Sometimes for years afterward. A single upset customer, could generate more negative word of mouth than 10 happy customers could create positive word of mouth.
How NPS Works
Sometimes called, “The One Question” the Net Promoter Score is based upon a simple idea backed by research. It tries to measure the likelihood that a customer will recommend your product or service.
When I got into business I heard it this way:
A happy customer might tell one friend that they liked your service. An unhappy customer will tell everyone who will listen how bad their experience was.
The actual data according to the White House Office of Consumer Affairs:
- A dissatisfied customer will tell between 9-15 people about their experience. Around 13% of dissatisfied customers tell more than 20 people.
- Happy customers who get their issue resolved tell about 4-6 people about their experience.
Unhappy customers are not simply twice as sensitive to loss as Kahneman wrote, they are between 3 and 4 times more likely to discourage people from doing business with you. A positive review and a negative review are not the same. Net Promoter factors this into its score.
Here’s how it works. Businesses ask their customers:
On a scale of 0 to 10 what is the likelihood you recommend us to a friend?
That’s it. Why the zero? To remove confusion whether 1 is best or 10 is best. First place, after all starts with a 1. But a ZERO is never a good thing (sorry zero). Customers are then grouped into 3 categories depending upon their answer:
- 9-10: A promoters. These are people who would absolutely recommend your business.
- 7-8: Are passive. These people won’t say anything to anyone about your company. they are not upset, they are just not impressed.
- 0-6: Are detractors. These are people who have had a bad enough experience to want to tell people about it.
You calculate a net promoter score by adding up the number of promoters, then dividing by the total sample size to get a percentage score (promoter %). You then add up the number of detractors, and you divide them by the total sample size to get a percentage score (detractor %).
You arrive at the net promoter score by SUBTRACTING the detractor % from the promoter %. The passives are ignored.
Let’s look at our example of customer satisfaction. Let’s say we had 5 scores: 10,9, 8,8, 6. This average would be: The total score would be 41. 41/5 = 8.2*100=82%.
But what if we look at this way. There are 2 promoters (2/5 = 40%) and one detractor (1/5) = 20%. What about the 8s? Well they are not going to promote your business so they are silent. That means your Net Promoter score would be: 40-20=20.
That’s right. 20.
A business with a customer satisfaction rating of 82% might have an NPS as low as 20!
This might seem harsh, but it’s a much better indicator of the word of mouth a business generates. It is even possible to get a negative NPS score (something that can’t happen with averages). Earning, and keeping a high score takes a complete dedication from everyone in the company.
What it takes to get a high score
In the year ending 2020 – one of our most difficult years ever, The GameTruck Franchise system had a global NPS score of 86. We are extremely proud of that score. A score like this means that nearly everyone who had a GameTruck Party – in one of the weirdest years ever – would recommend GameTruck to their friends. We were not perfect but we met or exceeded customer expectations often enough for the vast majority of our customer to want to recommend us to friends.
What does this mean for business owners?
- Only a fraction of our leads come from paid advertising. Most come from word of mouth. It is not uncommon for a paid lead to cost $10-$15 to generate. That’s not the cost of a sale. That’s how much real cash goes out the door just to talk to someone who might be interested in having us host a party for them. When you factor in our repeat business rate (about 30% – one and a half times higher than is typical for birthday party concepts) this means a great reputation can be worth thousands of dollars per month in advertising to our franchise owners.
- Coach tips are strongly correlated with high NPS scores. This means our staff earn more money which increases retention and job satisfaction. It’s not just the money, our people like making people happy. In general, it is much easier to serve happy and satisfied customers than frustrated customers.
Instead of calling customers to change their answers, our owners talk to customers who are dissatisfied and try to make it right. Just as importantly, they call customers who responded in the neutral range to learn what we could do to improve our service so that they would gladly promote it to their friends.
Instead of hiding problems, our owners are seeking them out so we can resolve them.
This attitude has made our business better over time. The results of their efforts show up in the surveys.
As Erik Maxwell, a franchise owner, explained succinctly, “When we meet customer expectations everyone wins. When we don’t, everyone loses.”
The key to Erik’s success? (his business routinely puts up NPS scores in the 90’s) – setting expectations, for his staff, for the customer, even for corporate. (I wrote a while back about hyper-communication– Erik personifies great communication).
While high NPS scores are great for business owners, the real payoff is for the customer. Why? Because everyone in the business is aligned to deliver a great party, and they genuinely want to create evangelists. We are not perfect, but instead of trying to deliver a “good enough”, everyone knows every party matters. Each experience adds to our word-of-mouth reputation. “Just okay” is not good enough. And leaving someone upset? You can see how damaging that is to a reputation. So we take it seriously.
At the end of the day, when you see an NPS score the simple way to think about it is, nearly 9 out of ten people (NPS: 86) had such a great experience they would recommend the service to their friends. And most of them do.
NPS is not simply about satisfaction, it is a system for making sure clients get the value they are paying for and more. It is the best measure for word of mouth we have found, and personally I believe it is one of the reasons we survived 2020 while our competitors folded.
In my experience you can trust NPS because it is hard to hide the unhappy customers. And this should give you confidence that chances are good that you too will receive an experience worth raving about.