Chris Lang, Client Services Director from Acuigen, hosted a well-attended webinar this week discussing the pros and cons of the Net Promoter Score (NPS) and ways to measure client loyalty in professional service firms.
We started by discussing the history of how and why Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld came up with the system and score, and how the increasing use of web based survey methodology increased its use and also the rating scale that it relies upon. Our discussion covered the following.
What is NPS?
The Net Promoter Score® is a metric that can be used to gauge the loyalty of a firm’s clients.
NPS became popular as web based surveys started to be used to assess customer satisfaction in the early noughties in the US, particularly in consumer sectors (banks, motor trade, airlines) where its simple structure was easy to replicate on a computer screen.
It’s authors suggest it measures customer experience and predicts business growth. It is calculated using responses to the question ‘How likely would you be to recommend our service/company to a colleague?’ as follows:
% Promoters - % Detractors = NPS
Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth
Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings
Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth
What is a good NPS score?
NPS is an index (not a percentage), where scores can range from -100 to 100. It is possible to purchase benchmark data across various industries. But in general, it is considered that anything above 0 is positive, or in other words, you have more promoters than detractors. Anything above 50 is excellent and anything above 70 is world-class. In Acuigen’s experience, professional service organisations typically have high net promoter scores, but one needs to be cautious when interpreting, as we went on to discuss.
What are the pros and cons of NPS?
There have been many academic studies and papers published talking about the pros and cons of the NPS system and score, and there appears to be an equal quantity that support it as criticises it.
From our perspective the pros of using the NPS are that:
It works really well as a simple, single data point to discuss.
It’s got a good reputation – executive teams like it and because it is well known it tends to be trusted.
In general terms, it is easy to set up, measure and calculate results, there are no complicated statistics involved.
It can be used as a benchmark tool for firms, however the way one collects the information and the sample of clients who have participated in any study needs to be carefully considered when benchmarking.
And the cons of the approach are:
It isn’t specific – it doesn’t identify clients’ opinions or the context behind the scores
It doesn’t account for the relative influence of each promoter or detractor (i.e. if a key client is a detractor)
It is insensitive to different cultures (some cultures tend not to rate at the ends of scales)
Generally, in professional sector feedback programmes, sample sizes are too small to make it work effectively
It is liable to ‘gaming’ and not good to use as a target for frontline staff
When comparative results are shared between firms, or compared with data from public sources, it’s very difficult to know if the sample of clients being referred to are valid comparators (is the comparator: key clients, private/corporate, representative/cherry-picked)
Sample selection, response and questioning bias all have an impact on the overall score
What are the alternatives
During our discussion, we debated alternatives and Chris discussed how we have found that due to the highly nuanced relationships that professional services firms form with their clients, more than one measure is necessary to assess client loyalty effectively. Further details of his thoughts and the discussion behind these can be found in our article Measuring client loyalty in professional services firms which considers four key metrics for professional services firms.
Join the discussion
All webinars are free to attend, to join the next webinar please visit our virtual events page.
References: Net Promoter, Net Promoter Score and NPS are trademarks of Satmetrix Systems Inc., Bain & Company Inc., and Fred Reichheld