Why NPS is a real-time KPI
KPIs exist to keep companies on track; to measure different company processes to maintain a level of performance that will guarantee growth. Many KPIs, such as marketing/sales and finance, are designed to measure and understand growth, but these KPIs miss one thing. They fail to report on a company’s present health, they either focus on what could be (but far from guaranteed) or what has already been.
In this article I explain how using NPS as a KPI can create a more accurate picture of your company’s health.
What other KPIs miss
To begin, let’s take a look at a classical KPI: revenue. There are many types of revenue based KPIs. Net profit margin, gross profit margin, and revenue growth rate are just a few, but they are all based on measuring the financial performance of a company.
A revenue-based KPI means measuring a company’s revenue by product line, team, store, etc. over a period of time. Compare current numbers to previous periods and you can see how revenue is performing. When revenue is rising this index seems to be a good way to understand company growth, but when revenue starts to fall this index presents a lot of problems and not many answers.
Outside of company induced actions such as price changes, a lower than expected revenue might be the result of a failure by marketing or sales, or maybe it’s due to the loss of existing customers. Most of the time it’s a bit of both. As all companies experience churn, revenue loss is simply a mixture of how well a company can acquire new customers and the number of customers that churn.
But using revenue as an index is problematic because it’s a lagging indicator. The results that are received are the symptoms of causes that have already long since occurred.
Falling revenue means customers aren’t willing to purchase from you/remain loyal and have been this way for a while. And what is keeping customers away or causing them to leave, started even earlier than their actions. Using revenue then as a KPI is a measure of the effect not a measure of the cause and once the effect has happened the loss has already done its damage.
Why NPS works
If revenue is dropping, marketing and sales KPIs can act as an early warning system for the revenue problems ahead, but they have little capacity to tell you why.
Using the Net Promoter System as a KPI helps companies take better control over their revenue by measuring customer loyalty. By investigating directly the loyalty of individual customers, companies don’t have to wait for revenue figures to realize there is a problem, but can immediately see that the loyalty of their customer base is dropping and learn why.
Knowing why customers lack loyalty enables companies to not only improve the experience of existing customers and rescue them, but it also helps companies uncover what is turning away potential customers.
Although it differs by industry and business model, existing customers and potential customers have many overlapping experiences. For example price changes, website experiences or in-store service are something that both new and existing customers experience. By understanding what your existing customers don’t like, you can help improve the experience for potential customers too.
How to use NPS as a KPI
How to use NPS as a KPI is not difficult, and there are many creative ways to do it. The most common way is to use the score itself as the KPI. If the score drops significantly, then there is something starting to affect customer satisfaction.
Others choose to use NPS as a case resolution KPI. In this process, companies first define which customer responses require a response, for example, customers that score a company 0 – 4. And for those that require a response, they count the number of cases they close with a positive outcome. This method is typically used by companies that have NPS positioned in customer support/service teams.
While Australian software company, Ansarada uses NPS as a KPI in product development. As new software products or features are developed, the company measures how many pieces of individual NPS feedback are addressed by it.
When using NPS as a KPI make sure to reward people or teams for it, as there is little point setting standards to meet if employees don’t have the motivation to get there. This reward can be bonuses, but financial compensation is far from the only way to motivate people.
However, while motivating and rewarding NPS objectives, employees should not be punished or reprimanded for failing to meet an objective. NPS is not a tool to evaluate and rank the competency of your employees, as there are always instances where it is impossible to improve customer satisfaction.
Lastly, if you are using NPS as a KPI make it visible throughout your organization. Put up digital displays with the results or use an intranet that all employees see to make sure it is known across the company.
Using NPS as a KPI is a great way for companies to improve the experience they provide to grow revenue. However, using it blindly as a KPI is not a good idea, it needs to be considered whether it is the right fit for the position your company is in.
If your NPS is already 60+, using it as a KPI that you want to improve upon might become frustrating for you and your fellow employees. For, scores this high mean a large majority of your customers are very satisfied and loyal, and improving your score becomes very difficult.
Be careful when comparing scores across different periods too. Did you measure it in the same way? If you measured a transactional score during one period and a relational score in the next, then you can't compare the two. If using NPS as a KPI, make sure to keep all the properties the same from month to month.
NPS measures real-time company health
Using NPS as a KPI does not mean abandoning other KPIs, but it is a metric that is crucial to securing revenue. NPS is not a lagging metric. It is about the health of your customers and your company today. It gives you the ability to identify customer experience problems that may significantly affect your future revenue and solve these issues before they become too big.
This article is republished from the original post with the author's permission.
Christian writes for CustomerGauge about all things Net Promoter and customer experience related. Not content with merely being informative, Christian's aim is to create free-flowing stories that not only enlighten but actively engage readers.