How your NPS score affects your bottom line

Sept 2018

Most managers and business owners understand, on an intuitive level, that customer satisfaction leads to better business. When someone has a positive experience with your brand, they become a loyal customer, and they come back to repurchase from your brand again and again. Depending on how positive this experience is, they might also talk about you on social media, and recommend you to their family and friends. Simple enough, right? 

But here’s the thing: delivering a great customer experience costs money. If you hire an army of customer service reps to ensure that your customers don’t have to wait too long to speak to someone via live chat, your payroll will increase. If you put into place a no-questions-asked money back guarantee, some people will abuse it, and your cost of doing business will increase. So here’s the million dollar question… will the money that you sink into increasing customer satisfaction generate a larger than proportionate increase in sales revenue? Or are you hurting your profits, and stunting your company’s growth by making customer satisfaction a priority?

How a company’s NPS score affects its growth and profitability

As it turns out, your NPS score - which measures customer satisfaction based on whether your consumers are likely to recommend your brand to a friend - is intricately linked to your potential growth and profitability. More specifically, a report about the NPS in the Harvard Business Review asserts that a 12-point increase in NPS scores leads to a doubling of a company’s growth rate on average. 

The above-mentioned report talks about how loyalty affects profitability - that we already know. It then goes on to discuss how a recommendation is one of the best indicators of loyalty, because customers are essentially putting their reputations on the line when they recommend a company or a product. That’s why a company’s NPS score (which asks customers how likely they are to recommend a company to a friend) plays a role in influencing growth and profitability.

NPS Case study: Airbnb

Let’s put all that theory aside for a minute, and look at a real-life example. Hospitality platform Airbnb has been monitoring their NPS score for quite some time now, and they recently got their tech team to look into their NPS data in an attempt to use said data to predict future interactions with the service. Assuming that Airbnb has two customers (one with a high NPS score, and one with a low score), how would they engage with the platform differently? 

After running the numbers, Airbnb found that their Promoters were 13% more likely to make a subsequent booking on their platform, and 4% more likely to refer a friend as opposed to Detractors. Airbnb also analyzed other factors that might affect bookings and referrals (including the reviews and value ratings that customers left their hosts), but at the end of the day, a customer’s NPS score was still the biggest predictor of re-bookings and referrals.

Focusing on customer satisfaction

There are plenty of strategies that business owners and marketers can use to drive growth, including PPC ads, User-Generated Content, and more. But a growing school of thought says that as long as you focus on making your customers happy, you don’t have to resort to spending big bucks on marketing and user acquisition. Your customers will naturally come to you. 

Take eCommerce conglomerate Amazon, for example. Founder and CEO Jeff Bezos built the company up on the premise that if you provide your customers with a great experience, people will talk about your brand. That’s not to say that Amazon doesn’t advertise to consumers - but instead of spending the bulk of their profits on ads, it also reinvests a great deal into free shipping, service enhancements, and other customer-centric features. 

The bottom line? If you want to build a sustainable business (one that has the potential to grow!), then you shouldn’t be earning at the expense of your customer. Ditch the misleading pricing, cutting corners, and aggressive selling. Instead, focus on providing your customers with a great experience - one that results in increased revenue because your customers keep coming back for more. That’s how you skyrocket your NPS score, and take your profits through the roof.

Want to get started with measuring your NPS score and taking your customer service to the next level? Start your free trial with SightMill now!