One of the most effective ways to measure customer sentiment is through the net promoter score (NPS) – the internationally recognised metric.
In this blog, I’ll deep dive into NPS in more detail and give five reasons why NPS matters for UK financial services companies.
What is NPS?
NPS is a measure of how well a company creates relationships with customers worthy of their loyalty, and they’re considered an important metric for companies to monitor.
At Smart Money People, companies get NPS included within their data as standard. When customers leave a review with us, one of the questions we ask them is: “How likely are you to recommend this company’s product to friends and family?”
We’ll then ask them to give a rating between 1 and 10, the results of which allow us to calculate the NPS of a company and their products.
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We then follow up with an open question: “What do you like about this company, and what could be better?”
Responses to this question are important to help us understand what the key areas – or, as we like to call them, drivers – are that influence a company’s NPS.
How is an NPS score calculated?
- If you give a score between 9 and 10, you are considered to be a ‘promoter’ and would actively recommend that company or product to others.
- If you give a score of 7 or 8, you are considered to be ‘neutral’.
- If you give a score of 6 or less, you are considered to be a ‘detractor’ and would actively encourage others to steer clear of that company or product.
We then calculate the NPS by subtracting the percentage of detractors from the percentage of promoters. You can have a NPS between negative 100 and 100. The higher the score, the more loyal your customers are.
Why NPS matters for UK financial services companies
- Increasing customer loyalty and retention
The UK financial services sector is competitive, with banks, insurers, and fintech companies all vying for market share. NPS is the universally understood metric that demonstrates customer loyalty – meaning higher retention rates. Companies that track and improve NPS can identify pain points and take proactive steps to keep customers engaged.
- Driving revenue growth
Loyal customers are more likely to purchase additional products and services. Research by CustomerGauge has found that improving NPS by just 10 points correlates with a 3.2% increase in revenue. So, a higher NPS often correlates with increased cross-selling opportunities and greater lifetime customer value.
- Gaining a competitive advantage
In a regulated industry like financial services, differentiation is important. Naturally, consumers often based their financial decisions on reputation and customer experience rather than just price. A strong NPS can be a powerful marketing tool, demonstrating customer satisfaction and trust in a company’s services.
- Identifying service gaps
NPS feedback helps financial services companies identify areas for improvement. If customers provide low scores, companies can investigate recurring complaints, such as slow customer service, poor digital experiences, or complex product offerings. Addressing these issues can lead to a better overall customer experience.
- Compliance and regulatory benefits
With the introduction of Consumer Duty, measuring good customer outcomes and fair treatment is more important than ever. A high NPS can demonstrate a company’s commitment to customer satisfaction and ‘doing the right thing’, aligning with the FCA’s expectations and reducing reputational risks.
Final thoughts
In summary, for UK financial services companies, measuring and improving NPS is more than just a customer satisfaction metric – it’s an incredibly powerful tool for driving loyalty, growth, and competitive advantage.
When financial services companies use NPS to its full potential, they can build stronger relationships, enhance their reputation, and ultimately achieve long-term success in the marketplace.
