When it comes to driving growth, there’s only one factor that matters— customer satisfaction.
The more satisfied your customers are with your services, the more willing they would be to do business with your company. And the longer your customers stay with you, the more predictable and stable is your revenue stream.
Keeping users happy also triggers brand loyalty and motivates them to refer. According to 2016 Nielsen study, referrals are still one of the most trusted form of advertising, with more than 84% users relying on recommendations before making a purchase.
In other words, customer satisfaction translates to high customer retention, which in turn translates to higher referrals, lesser churn and lower cost of acquisition, thereby making it an equitable long-term growth strategy.
But how do you measure customer happiness, short-term and long-term, since customer satisfaction is a qualitative metric?
It cannot be measured simply by analyzing how much time they are spending using your product or service (maybe they are not able to figure out something?), how much they are spending using your product (what if they are spending more on a competitor’ product?), or how many of them stick with your product (what if they are not moving because of high migration costs?).
The de-facto standard that most businesses use to pre-assess customer satisfaction is customer survey. Only by asking the right questions you get right answers. More often, a single question can be asked frequently and across multiple industries to gauge the momentum of your brand and predict the growth trajectory.
I’m going to share two simple, yet effective methods of measuring customer satisfaction – CSAT (Customer Satisfaction Score) and NPS (Net Promoter Score), which you can use to analyze customer interactions and predict future performance.
What is Customer Satisfaction Score (CSAT)?
Customer Satisfaction Score (CSAT) is a method used to assess how satisfied are the users interacting with a product or service. It’s that one feedback question which pops up every time you use a product or service from an established brand.
Here’s what a typical CSAT survey question would be like:
How would you rate the recent product experience?
- Very dissatisfied (Very Bad=1)
- Somewhat dissatisfied (Poor=2)
- Neither satisfied nor dissatisfied (Average=3)
- Somewhat satisfied (Good=4)
- Very satisfied (Excellent=5)
Number of satisfied customers (score: 4-5)
____________________________________________________ X 100 = CSAT score
Number of total survey responses
CSAT takes advantage of the fact that users are more likely to answer questions, when they are asked in the right context. For instance, asking customers to rate a customer support interaction or product experience after they have had a chance to engage, increases the response rate and accuracy of the captured emotions.
The CSAT score is then derived by aggregating the scores and looking at the median value. If more than 70% of the respondents feel that the service is good or excellent, your brand is handling customers remarkably well. If more than 70% of respondents are neutral or dissatisfied with your service, you need to work on optimizing your customer experiences.
What is Net Promoter Score (NPS)?
The Net Promoter Score, often regarded as the ultimate growth metric, is calculated by asking your users a very simple question: “On a scale of 0-10, how likely are you to recommend our product/service to a friend or colleague?”
On surface, the question sound really simple, but it’s a great metric to assess how customers really feel about your brand. That’s because, according to cognitive dissonance theory in psychology, individuals tend to seek consistency in their actions. So, if a user recommends your brand to their friend/colleague, it’s very likely that they will stick with it too.
In rather simple words, NPS calculates the extent to which your company is “referable”. To calculate the NPS score, responders are split into three categories, based on their individual responses:
- 9-10 – Promoters (They love your company’s products and are likely to refer your brand to potential buyers)
- 7-8 – Passives (They don’t spread any negative word-of-mouth, but would easily switch if they had a better option.)
- 0-6 – Detractors (They are unhappy with your service and likely to damage your brand reputation with negative word-to-mouth publicity)
The Net Promoter Score is then calculated using the following formula:
NPS = (% of Promoters) – (% of Detractors)
The score is an index ranging from -100 to 100 that tells you how loyal and happy your customers are with your company’s product or service.
An NPS score above 50 can be considered a solid indicator of brand loyalty and overall customer success. Likewise, any score below 0 tells you that you have more detractors than promoters, which is generally not a good sign.
For instance, companies like Apple, Amazon and Netflix have an aggregate NPS of 69, which is exceptional, while the average NPS of health insurers averages just 4.
CSAT vs NPS: which is a better satisfaction metric?
Let’s assume that your company is a bucket holding a “pool” of customers. The water flowing from the above tap denotes the newly acquired customers, while the holes in the bucket are potential bottlenecks in customer experiences that push the water out.
The rate at which the water flows from the tap would be your company’s growth rate (G), while the total outflow of water through the holes would be your churn rate (C). The number of active users (A) that bring revenue to your company can then be determined by: A = G (Growth) – C (Churn).
Ideally, you would want to reduce your churn rate and increase the growth rate, so that you could serve a maximum number of customers and build up revenue.
Customer Satisfaction Score (CSAT) can help you assess the number of holes in your bucket, and provide actionable insights into solving them. For instance, if a customer rates an experience as poor, you can shoot up an email and ask them for suggestions to make the overall experience better.
NPS, on the other hand, helps you assess the growth rate of your company and provides metrics to bring down the churn rate. For example, if you have an NPS score of -30, it means you have more detractors than promoters, which could possibly lead to bad word-of-mouth publicity (lower growth) and more churn.
The subtle difference, here, is that CSAT aims at just filling up the holes, but does not give you any information about the future growth prospects of the company, while NPS gives you solid insights into the projected growth trajectory and also the number of holes in your bucket (detractors).
NPS score is more accurate than CSAT
While customer satisfaction surveys are conducted to assess the quality of interactions, they have a risk of fetching ambiguous responses.
If the options are not framed correctly, users could select a neutral option (3 or 4) without committing to a strong point of view, thereby making the survey inaccurate. Also, users who have had a negative experience are less likely to complete the survey out of sheer frustration, thereby skewing the overall score.
Another reason why CSAT scores could turn out to be inaccurate is fear of admission. Users who rely on your brand’s customer services on a day-to-day basis might be afraid of being honest with the brand, especially if they think that any negative feedback could impact the turn-around time or ongoing business relationship.
NPS, on the other hand, allows users to be honest by asking a simple question about how enthusiastic they feel about referring their service to a friend or colleague. Since the question has nothing to do with the ongoing experience, users are more honest in their opinion.
Moreover, there’s no need to ask the question only after an user has had an experience. You can pop the question, anywhere, which means you have a large set of data and lesser friction, all of which contributes in improved conversion rates and accurate insights.
CSAT is more focused on customer interaction, while NPS predicts growth
The CSAT score is probably the weakest predictor of the future growth of the company, since it’s focused on a specific interaction, rather than the overall brand experience.
You can certainly grab data points about how users feel about your service using CSAT scores, but that feedback cannot be extended to analyze how they feel about your brand.
For example, an user might rate the quality of one particular Skype call as excellent, but that does necessarily imply they love using Skype. It’s very much possible that they feel differently.
Unlike CSAT, NPS provides a solid metric for predicting future growth of the company. That’s because users who are likely to refer your brand to their friends or colleagues have intense brand loyalty. For instance, if you recommend Skype to your friend or colleague, it’s because you love the overall experience, and feel confident that they would like it too. When your friends tell you that they love Skype too, you become their strongest brand advocate, due to the power of social validation.
Considering the fact that referrals have the highest conversion rate (>80%), NPS helps you find your strongest brand advocates and allows you to significantly lower the Customer Acquisition Cost (CAC) by turning their social capital into your brand’s economic capital.
By consistently analyzing the ratio of promoters and detractors for your brand, you would be able to get accurate insights about how many long-term relationships you are building and whether you’ll be able to grow as quickly as you have planned on your whiteboard.
CSAT measures short-term satisfaction, while NPS predicts long-term customer satisfaction
Customer satisfaction surveys are a great way to interact with a customer and close the feedback loop, while ensuring you have met their expectations. By just asking a simple survey question, you can measure the short-term happiness or “excitement” of the user.
For instance, offering customers an opportunity to give a quick thumbs up or thumbs down at the end of a service helps them quantify the customer experience and compare it with a wide spectrum of recent experiences.
While you can certainly aggregate CSAT scores across a customer’s tenure to measure their long-term happiness, the problem with using CSAT as a generic metric for satisfaction is that it does not capture the wide array of audience. For instance, it does not capture the newly acquired users (who have never used the service) or the ones who are thinking about leaving the service (who might never use the service).
If you consider such boundary cases, Net Promoter Score (NPS) is a much better indicator for measuring long-term customer experience.
That’s because NPS focuses on the overall referability of your brand rather than individual customer experiences. The premise is based on the fact that users are unlikely to refer a brand if they don’t trust it, and if they do refer a brand, they’re more likely to stick to it.
Also, to make NPS surveys accurate and realistic, the sample size is randomized to encompass the entire customer base, and not just the recently active users. It gives a much more realistic perspective of overall customer happiness.
Since NPS is about evaluating long-term happiness and not about capturing emotional states for transactions, companies generally send NPS surveys at regular intervals– for instance, every three or six months.
Over time, you’ll want to see the NPS graph go spirally upwards, indicating strong growth and intense customer satisfaction. To make that happen, companies often ask for explanation from customers about their rating and extensively study customers that moved from being a promoter to detractor, or vice-versa, in a given time period.
Often, it’s one bad experience that pushes the customer from being a brand advocate to a brand detractor. By eliminating these potential bottlenecks and ensuring a smooth end-user experience, you can not only retain more customers, but also prioritize the ones that matter to you the most.
Improving Your Net Promoter Score
Retently lets you track your net promoter score (NPS), so that you can accurately track brand loyalty, retention and long-term customer satisfaction. Learn more about Retently and start a free trial.