If you conduct Net Promoter Score (NPS) surveys (or similar surveys), do you know how much your Detractors are costing you? Do you know how much more your Promoters spend? Do you know their Average Order Value (AOV)? Knowing your AOV will help decision-makers realise the financial impact of Promoters and Detractors and make them willing to invest in reducing their Detractors and increasing their Promoters.
Work out your Average Order Value (AOV)
To work out the Average Order Value is very simple. Work out the total revenue for any financial period (3 or 6 months, or a year). Now count the number of customers who bought something from you within that period. Divide the total revenue by the number of customers and you will have your Average Order Value.
Work out Promoters and Detractors AOV
To work out the Promoters and Detractors AOV can be a time consuming exercise depending on your accounting system and your NPS database. You will have to be able to identify which customers are your Promoters and which are your Detractors. Count how many Promoters you have and add up how much they spent with you. Now divide the amount the Promoters spent by the number of Promoter to get the Promoter’s Average Order Value. Repeat this for the Detractors and Neutrals to get their AOVs.
Analysing the Results
You will find that your Promoters’ AOV is higher than your Neutrals’ and much higher than your Detractors’ values, well that is the trend we have found (see the graph below). You will note that the Promoters’ AOV is also higher than the overall average AOV. Keep in mind the Promoters’ AOV does not include business you may have gained from their referrals and their good word of mouth advertising on your behalf. These AOVs will give you financial proof of the importance of having a customer experience management process within your company.
A Poorly Rolled Out Customer Experience Management Plan
Directors and shareholders know the importance of good customer service but don’t want to spend the money to give good service as they do not see the ROI. And they are right. A lot of customer experience exercises shoot for the moon; all stops are pulled out but after six months there may be a small revenue uptick but nothing like the money that was invested. Divisional heads don’t see any impact and they go back to their old ways of doing business and the whole project is shut down.
How to Calculate Your Potential Revenue Using your NPS Scores and Your AOVs
Let’s make some assumptions:
· You have 2,000 customers
· Your response rate was 20%
· Of those respondents 15% are Detractors and 25% are Promoters so your NPS is 10% (%Promoters minus % Detractors)
· Your overall average AOV is R134.50
· Your Promoters AOV is R145.00
· Your Detractors AOV is R123.00
You can make a relatively safe assumption that if all your customers responded to the NPS survey the percent of Promoters and Detractors would have been roughly the same so you have about 500 Promoters and 300 Detractors, the remainder Neutral.
Therefore your Promoters spend R72,500 (500*R145), your Detractors spend R36,900, and the Neutrals and ad hoc customers spend R161,400 totalling around R270,800.
Now imagine if you can make all your customers Promoters – your revenue will increase to R290,000 (2,000*R145.00) – a R19,200 or 7% revenue increase by fixing those processes your Detractors do not like.
Obviously that is not something that is immediately achievable but it does give a financial target to work towards and shows the financial reward of taking customer experience management seriously. This also does not take into consideration all the additional customers you will get through word of mouth advertising, referrals, and your decreased churn rate.
Applying the AOV Results to Your Company – Identifying Low Hanging Fruit
Now that you know the financial benefits you can justify a certain level of investment in fixing things up, something the accountants will support you on.
A well-run NPS survey should ask three questions:
1. How likely are you to recommend us to a colleague or friend?
2. Why did you give us that score?
3. How can we improve?
Take the Detractors’ second question answers (Why did you give us that score?) and categorise them around business processes within your company. Ask the managers responsible for these processes to fix them (they can use the third question responses – “How can we improve?”). Your NPS survey literally gives you all the answers you need to fix up the easy fix solutions, low hanging fruit.
Once this exercise is complete it is very important to measure the change in revenue. Work out how much the improvements cost to implement and this should show a significant ROI.
Once you have completed this exercise it will be easier for you to motivate any additional customer experience management changes you have in mind. In fact the saving you generated should pay for future CEM plans making CEM totally self funding; a shareholders’ and Board of Directors’ dream.