To show investing in NPS feedback makes sense, you need to show it makes business sense. In this blog series Starred’s finance guru Peter Strik breaks it down.
Customer centricity is essential to your organisation’s long term success. That’s why smart organisations invest in customer feedback. How else can you know if you’re headed in the right direction? It makes intuitive sense, but does it make business sense? Because while you’re struggling for even a small boost to your budget, the sales and marketing department is swimming in extra cash. How come? Because they can show return on investment.
What is NPS and why is it important?
Net Promoter Score (NPS) is one of the most prevalent and important business metrics. It’s a tool that helps you gauge the loyalty of your clients. The idea is that by asking a simple question based around whether someone would recommend you or not, you can understand their loyalty to your business. Answers to this recommendation question are given on a scale of 0-10. Scorers 0-6 are ‘Detractors’. 7s and 8s are ‘Passives’. 9s and 10s are your ‘Promoters’. Working out NPS is easy, here’s how to calculate NPS:
How to calculate Net Promoter Score:
Your overall score will land between -100 (all Detractors) and +100 (all Promoters). Companies with very high customer satisfaction tend to report NPS scores of +60 or higher. A lot of discussion occurs around benchmarks and comparisons of NPS scores. Arguably more important, however, is measuring your own NPS baseline and improving it based on the reasons *why *your customers are recommending you or not.
More Promoters is without doubt better for your business. Enthusiastic, loyal customers recommend you more to others, buy more from you, and present significantly less risk of churning. To grow your customer-facing business you need to measure NPS and boost it.
To show NPS pays off, you’ll need a strong business case.
In this series of blogs, I’m going to help you building a business case for NPS. To get customer feedback right, you’ll need to make sure everyone is singing from the same sheet. That’s why I’ll be a covering several topics, all grouped together in 3 main areas.
1. Strategic fit
2. Implementation plan
3. Working out the financials
Let’s dive into each of these three areas to cover the basics – I’ll get into more detail later.
When you write a business case, you evaluate a business decision and underpin it with three key elements. It comprises: strategic fit, an implementation plan, and the financials.
These three elements come together in the decision taken by your team or management. For example, in your business case for NPS, you can propose them to take a decision like the following:
ACME Recruitment’s mission puts the customer at the heart of everything we do. To improve our ability to listen and learn from our customers, I propose to implement a fully-automated cloud software feedback solution. By collecting continuous feedback from our clients, we can monitor customer feedback and customer engagement, expressed through NPS, along the entire customer journey. This will require:
- Authority to recruit one full time employee, who will develop and monitor fact-based improvement of customer experience, at an annual salary of € 30.000,
- An annual operational expenditure of €4.000 for software license fees,
- One-off capital expenditure of €1.000 for internally developing integrations between the feedback software and our core CRM- and service ticket systems.
This will resulting in an improvement of the NPS of ACME Recruitment of +5, as well as an additional margin of € 60.000 per year, which represents a Return on Investment of +13%.
Let’s break down the three key elements of the business case one-by-one.
You first need to understand how NPS fits into your organisational strategy. This is the first step towards getting sign-off for the extra budget you need.
The greatest challenge your team or senior manager has, is to make sure that they allocate the resources and capabilities at their disposal to execute and support their strategy. That means that all their staff, budget, and objectives should be focused on reaching the organisation’s strategic objectives. There’s both “business-as-usual” work, as well as strategic actions aimed at making big improvements.
Finding the right NPS strategy for your organisation
By taking into account your organisation’s corporate or departmental strategy, you can identify your proposal as a strategic action necessary to execute or support the strategy. For example:
- Customer-centric strategies put the customer at the heart of everything that happens in the company. It’s therefore crucial to get high quality customer feedback from every stage of the customer journey, as it’ll help you identify strengths and weaknesses in your product, service, or customer-facing processes.
- Growth strategies focus the business on expanding existing markets or finding new ones. Customer feedback will help you segment your existing customer base into Promoters, Passives, and Detractors. Promoters spend between +15% to +350% (!) more than Detractors, so identifying and growing your share of Promoters is an essential part of any growth strategy.
- Cost reduction strategies aim to cut unnecessary expenditure from the budget. Build your NPS case on reducing your share of Detractors. They’re more likely to complain or take up your support resources, so solving a Detractor problem cuts your company’s customer service costs.
- Innovation strategies help companies grow through advancements to technology or services. Innovating and solving your customers’ problems opens opportunities for feedback. Getting objective customer feedback will identify gaps in your portfolio and focus attention for your R&D by identifying things that your customers really value.
NPS implementation plan
The second key element in your NPS business case: a crystal clear implementation plan. You need the confidence of your team or senior manager that you’re ready to get started, as soon as you have the go-ahead. That’s why it pays to hash out the key steps of your plan for a successful roll-out of NPS. In your implementation plan, you need to cover 4 main elements.
The 4 main elements of an NPS implementation plan
- Establish your NPS baseline. Do this either by analysing your existing NPS data. If you don’t have existing NPS data then Starred is the perfect solution. Book a demo with us and tell us your challenges. We’ll set you up a trial and you’ll be ready to send your first survey in less than an hour. With your NPS baseline taken, you can get to work. Segment your customers into Promoters, Passives and Detractors. You’ll have to do this to get your financial calculations in order, ahead of making your business case.
- Identify NPS drivers, and analyse them using a priority matrix. You can only find out what is driving NPS if you measure correlation with several carefully selected variables. These can both be pre-defined (e.g. known customer characteristics), as well as additional satisfaction drivers (e.g. product delivery, packaging, service). Once you analyse the impact of all the variables on NPS in both your baseline and subsequent surveys, you’re establishing a list of the things you need to invest in that will actually improve NPS.
- Implement automated feedback software so you can scale your feedback plan. Working with customer feedback in a structured way is a task which will require a few pairs of hands. But do it smart – there’s no need to waste time and play it risky by manually sending invites and handling data. Automating feedback frees up your stakeholders to focus on the things that will actually improve your NPS.
- Design feedback processes to embed customer feedback throughout the organisation. By identifying the routing of feedback through your organisation, you can enable the right stakeholders to engage directly with customers, so that you can quickly solve your Detractors’ problems, or benefit from your Promoters’ enthusiasm. Just as important is setting up a process through which you will create action plans and monitor improvement initiatives.
A tool like Starred’s Priority Matrix helps you identify your NPS drivers by ranking up to 10 variables according to customer satisfaction and impact on NPS. It also helps you visualise which variables you need to improve, leverage, monitor, or maintain.
Working out the financials
Once you’ve found a strategic fit for NPS and created a clear implementation plan, you’ve established that your proposal makes business sense. Now you need to make sure that it makes financial sense. Because in the end, a business case is also very much a financial decision.
Here’s how you demonstrate the return on investment of your business case for NPS.
As the term suggests, Return on Investment determines the (expected) return in terms of net revenue growth for any investment. On the net revenue growth side, the equation has three levers.
NPS & the 3 levers of revenue growth
- Increased revenue from a larger number of Passives and Promoters. Findings from studies on NPS show Promoters spend between +15% to +350% more than Detractors, and Passives spend around +10% more than Detractors. So, for every point that you improve your NPS, your organisation will increase its revenue.
- Lower cost from a smaller number of Detractors. Again, drawing from case studies on NPS, it’s clear that Detractors cost your organisation a lot more money. They’re also more likely to complain, or call support. Reducing the number of Detractors therefore directly results in lower costs.
- Less churn as Promoters are more loyal to you than Detractors. The evidence for this is overwhelming. It comes down to the fact that Promoters have no reason to look for alternatives. They’re already happy with your product or service. Detractors, unhappy with your organisation, will look elsewhere and are much more likely to leave. This is costly from a customer acquisition perspective. Finding a new customer is more expensive than maintaining an existing relationship. It also puts a brake on your organisation’s growth.
Finally, you estimate the investment you’re asking your team or senior manager to make. The investment will consist of the cost of any additional team members you need to implement your plan, the cost of the feedback software you need, any one-off investments in implementing the software (e.g. developers that can integrate the software into your existing core CRM- and support ticket systems), and a small percentage (5-10%) for any unforeseen costs.
Even if you’re planning to absorb the extra work in your existing team, it’s good to include it in the financial plan. It shows you’ve got a comprehensive plan in place, that is well-supported by your organisation.
More to come
To make a success out of customer feedback the first step is building a business case for NPS which proves its fit in your organisation. On a strategic front, in a clear implementation plan, as well as with well-calculated financial planning – all bases need covering in your business case. If you follow this guide you’ll be off to a good start.
Still to come in this series we’ll have articles focusing on all three elements I’ve put into play here, as well as deeper dives into specific topics. I’ll go more in depth on proving Return on Investment, putting together a flawless feedback implementation plan, and provide a template you can use to present to your team or senior management. Sign up for my blog using the form on this page to be the first to know when I’ve released my more detailed blogs on strategic fit, implementation planning, ROI-calculations, as well as the use cases of our customers that successfully implemented customer feedback software to get started with NPS.