Net Promoter Score: Cautions and Opportunities
Great advisory firms are obsessed (in a good way) with understanding the expectations of their clients and ensuring they are meeting or exceeding those expectations.
The question, of course, is how do you know if you are meeting or exceeding expectations? There are any number of ways to measure the quality of the relationship, from satisfaction, to value to impact. But none has captured the imagination of this industry (and others) quite like the Net Promoter Score. If you’re not tracking it in your business, you’ve probably heard about it.
As a quick reference, the Net Promoter Score question is below. Respondents are categorized as Detractors (0-6), Passives (7-8) or Promoters (9-10). The NPS itself is calculated by subtracting the percentage of Detractors from the Percentage of Promoters.
At an industry level, Absolute Engagement ongoing HNW investor research puts the industry NPS at 50.
Fun fact. Over half of clients who fell into the Detractor category in our research were somewhat/very likely to continue working with their advisor (56 percent of Detractors) or somewhat/very satisfied with their advisor (55 percent of Detractors). It’s a reminder that we need to interpret all data carefully.
Top 10 Cautions and Opportunities
This post is not about whether Net Promoter Score is the best metric to measure success. There are pros and cons. The main 'pro' is that it's a very simple metric. The main 'con' is that it’s a very simple metric. On its own it doesn’t necessarily capture how clients are really feeling, nor the real risks and opportunities in client relationships.
This post is about ensuring you are aware of the potential pitfalls, as well as the hidden opportunities to extend the value of any NPS program.
#1 Defining Risk
Caution. A Detractor isn’t necessarily at risk.
Opportunity. The word ‘Detractor’ carries negative connotations so it’s not surprising that it triggers alarm bells. Bear in mind that some people are unlikely to refer because they feel uncomfortable making referrals or because they don’t live in the area. More importantly, they may simply not know if a referral opportunity will present itself in the next year.
Action. When following up with detractors or trying to interpret NPS across the firm, don’t assume all detractors are unhappy. Approach with caution.
#2 Lurking Risk
Caution. You may be missing other forms of risk.
Opportunity. It’s easy to assume that NPS or satisfaction will identify clients at risk. But risk is more insidious. For example, there is a strong correlation between personal feelings (such as a client’s sense of confidence, control and security) and their NPS, satisfaction and loyalty ratings.
Action. Incorporate questions that get at the underlying causes of risk in client relationships.
#3 The Couples Gap
Caution. Couples don’t think the same and that can skew the results.
Opportunity. Many firms invite input from the lead client. The reality is that couples think very differently, and you may not be getting the full picture if only one is responding.
Action. Invite input from both partners - and highlight differences - to get a true picture of how you are performing and to follow up appropriately.
#4 The Downside of Simplicity
Caution. There is limited value in any single metric.
Opportunity. The simplicity of asking one question has strong appeal. We need to bear in mind that clients are complex; one number cannot provide the leadership team with sufficiently robust data, nor advisors with the insights to engage with their clients.
Action. Ask additional questions that will inform the client experience you need to deliver and to gain a deeper understanding of what clients really need.
#5 Focusing on a Point in Time
Caution. Point in time data can be misleading
Opportunity. NPS data is most effective when viewed over time, particularly if analyzed across key segments. At any point in time, bias can be introduced. For example, an advisor who adds a high number of new clients may see a lower NPS rating simply because the relationships are new. That bias will be washed out over time.
Action. View NPS data over time rather than drawing conclusions based on a point in time. Analysis showing change for individual clients is more powerful still.
#6 Transactions vs. Relationships
Caution. Inviting input after a review meeting feels transactional.
Opportunity. When NPS was first introduced it was being used by transactional businesses. In those industries it made sense to ask ‘the question’ when the transaction was complete. If you are asking about referral propensity after every review, you may be sending the wrong message to clients. It is a relationship, not a transaction.
Action. Create a regular cadence for measuring NPS that is disconnected from the review meeting and no more than once a year. You might invite feedback of all clients at the same time each year, a segment of your clients each month or quarter, or individually on the anniversary date of working with the client.
#7 Data Silos
Caution. Siloed data leads to missed opportunities.
Opportunity. Focusing on aggregate NPS data sheds light on how the firm is performing. Examining that data in the context of other data points, such as age, gender, persona or profession drives deeper insights. Examining that data relative to the actions clients are taking (e.g., fund flows or referrals) makes it even more powerful.
Action. Ensure NPS can be integrated into a broader data analytics strategy to drive deeper insights.
#8 Driving Action
Caution. Measuring NPS is different from driving increases in NPS.
Opportunity. A metric provides helpful insights on change over time but limited insight on what you need to change. To focus on change, you need to understand the factors that are driving NPS up or down.
Action. Capture input on a broader range of relationship factors and use that to identify the ‘levers’ that will impact NPS.
#9 The Rearview Mirror Effect
Caution. Measurement focuses on the past, not the future.
Opportunity. While the NPS question asks about the next 12 months, it is really a measure of how well you have delivered on your client experience and promises in the past. This is the nature of all client ‘feedback.’ By contrast, client ‘input’ focuses on what clients need, want and expect and that is the data that will inform the future of your client experience.
Action. Ensure you are asking questions to inform where your client experience is going, not only where it has been.
#10 Better Testimonials
Caution. The best testimonials aren’t about propensity to refer.
Opportunity. With changes in the SEC marketing rules, many firms are using NPS to identify clients who may be interested in providing a testimonial. A willingness to refer will identify clients who are happy, however it doesn’t set the stage for the best testimonial.
Action. Invite clients to identify the impact of working together and capture the words they use to create powerful testimonials.
Thanks for stopping by,
P.S. To learn more about the role client feedback can play in your business (whether via Net Promoter Score or some other measure of success), visit us at www.absoluteengagement.com.