Linking NPS to financial performance

Linking NPS to financial performance

Trying to find the ROI behind customer experience investments might be a tricky time to time. Here is one approach that is based on vast studies about companies that excel in listening to their customers and taking that information back to their business to improve it.

Let’s start by analyzing the difference in value between your detractors and promoters. Here, NPS typically has a very high correlation with retention: the happier the customer, the more loyal they are and therefore the more revenue they generate for you during their customer lifetime.

You should look at your customer’s behavior in history. Of the promoters, which you had 1 year ago, how many of them have stayed? How many have left? Most likely these numbers are very different for the detractors.
When you have, based on the historical data, established a clear link between your customer experience metric and churn rate, you can immediately start to understand how big of a financial impact your X-point NPS increase has. A study done in London School of Economics in 2005 found that 7 point NPS increase led to an average 1% revenue increase.

But you shouldn’t assume industry averages apply to you directly.

There are huge industry-specific differences – in competitive industries, customer experience differences easily lead to a situation, where your customer decides to switch vendors. In industries, where consumers have very limited choice, they can stay as your customer for a long time even if they hate you. In B2B the user and buyer can be different persons and the decision-making dynamics therefore complex. Therefore, I warmly recommend knowing your own numbers.

Keep in mind that there are also other ways the customer experience improvement impacts your bottom line. Higher NPS typically correlates with higher advocacy, which brings you more customers and revenue. Your most loyal customers also typically buy more from you. You have a chance to up-sell and again increase your revenue.

The benefit can result from the cost savings as well. The higher your NPS, the smaller the number of customer complaints and returns. This can make you save in customer support and repair costs.

To summarize, there are some standard ways through which NPS improvement (or customer satisfaction increase) translates to financial value. You should quantify at least some of these for your company. Once you have done that, you have a good understanding of what is the financial value of one-point NPS increase – that makes it easy to assess, whether a particular action targeted to drive the NPS up, makes sense or not.

As conclusion, we could say that this model will give you a head start on how to see the financial benefits around NPS. Again not a comprehensive model but will help you out!

CXforum is born!

CXforum is born!

We believe that everyone deserves to be happy and get better quality experiences every day.

That is the reason why we created a center of excellence and global knowledge base around “The entire journey” which basically means that we had to create the largest global community of Customer experience and Employee experience professionals that helps each other to excel in creating the happiest customers and employees in the world.

Technology has changed the world so that 89% of companies compete purely on CX basis and what we noticed is that only 10% of companies invest enough in their customer experiences. 

This said, companies are not able to rely on sololy in investing high technology, even though that remains to be important, the only way to survive is to create exceptional experiences day after day. And who create those experiences? Well, your employees of course. This is another reason why we think that we need to concentrate on discussing and educating ourselves about the entire journey and not just one touchpoint.

Even though CX has taken its place in the professional community of marketers it still remains a very uneducated field of marketing. Very few universities adequately teach about customer experience, employee experience, customer journeys, and above all how to drive business benefit from them and create happier customers.

There is a lot of talks but few deeds – and this is where CXforum comes in. Our goal is to really revolutionize the world of marketing and CX.

At the moment we are building killer content for every CX professional (obviously) but also above that an educational system with certifications to really make sure we can create great CX professionals for companies. We also create CX professional directories for companies to find CX professionals easily. This is topped with the worlds biggest CX events ever made – so that you can have access to the best information out there.

CXforum is an independent network of Customer Experience and employee Experience professionals, companies, and people to bring knowledge and methods together to create better experience unconditionally.

The idea of CXforum was created during one single night when I happened to meet one single-minded CX professional from Melbourne. After a long night of chat, during the first hours of the morning, CXforum was set up and good to go!

Jaakko, Co-Founder of CXforum