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Customer Experience Metrics: How Builders Can Use NPS

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Sales + Marketing

Customer Experience Metrics: How Builders Can Use NPS

When it comes to measuring customer experience, the Net Promoter Score is an underrated and misunderstood metric in the housing industry. Here’s how to use NPS to gauge customer loyalty and boost referral sales


By Jimmy Diffee December 4, 2022
NPS score gauge
The most critical metric for home builders should be Net Promoter Score. | Image: Olivier Le Moal/ stock.adobe.com
This article first appeared in the November/December 2022 issue of Pro Builder.

If there was one score you cared about most for your home building operation, what would it be? Cycle time? Homes delivered? Absorption rate?

These are critical metrics, no doubt, but I would wager the one key metric that isn’t at the top of your list, if it’s on it at all, is Net Promoter Score (NPS).

What Is NPS and How Does It Work?

Widely considered to be the “Ultimate Question” to ask your customers, the Net Promoter Score is a specific metric that was designed by management consulting firm Bain & Company to help companies gauge customer loyalty and strategize for business growth. It’s been around for 20 years and is used by two-thirds of Fortune 1000 companies.

Even if you aren’t familiar with the history or the name, you’ve likely heard the NPS question: “How likely is it you would recommend this company to a friend or colleague?” Answers are on a scale of zero to 10, with zero being “Not at all likely” and 10 being “Extremely likely.”

At its core, it’s a simple question, which is one reason why it’s so powerful. As a respondent, it’s easy to understand what you’re being asked, and the scale is broad enough to allow for a spectrum of responses.

If you were to only ask one question in your homebuyer surveys, NPS should be it. Then ask “why?”

But the real power of NPS lies in how the scores are calculated:

  • Those who answer with 9 or 10 are considered “Promoters” or loyal enthusiasts of your brand.
  • Those who answer 7 or 8 are “Passives.” They may be satisfied customers but are not actively making referrals.
  • Those scoring zero to 6 are considered “Detractors” and are possibly damaging your brand through their negative reviews and word of mouth.

To calculate the overall NPS score, researchers subtract the percentage of Detractors from Promoters. Theoretically, the lowest the NPS could be is -100 (if every homebuyer is a Detractor) and 100 the highest (if every buyer is a Promoter). A zero score means you have the same percentage of Promoters as Detractors.


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Customer Feedback Beyond Just Yes or No

An alternative version of the NPS question is similar but can have very different (and far less valuable) results; that is, “Are you likely to recommend us to a friend or colleague?” with a simple Yes or No answer.

With this version, you’ll glean a precise number of potential referrers (Yes answers), which is a handy benchmark, but by forcing respondents into a yes or no answer, you miss any nuances regarding their likelihood of actively advocating for your brand, so it’s less reliable or assured.

Ask yourself: Are your average satisfied customers actively referring friends to you? Possibly. But there’s a lot of gray area between Detractors and Promoters, and a Yes/No answer doesn’t account for Passive customers as the scaled NPS does.

In fact, most Passives taking your survey don’t want to throw anyone under the bus, and they’re more likely to say Yes than No, regardless. As such, with the alternative, simpler version, you end up with bias in your data.

NPS or CSAT ... Which Is Better?

Many builders ask me: I measure Customer Satisfaction [CSAT]. Isn’t that the same as NPS?

It is not ... at least not as an overall gauge of customer value. Asking buyers the typical CSAT question: “How satisfied are you with our product or service?” is a great question, but it’s better suited to identifying short-term changes that can be made after an interaction, not longer-term strategic moves.

For example, you may ask the CSAT question after a design studio appointment so you can improve that part of the homebuying journey. Just be sure to consistently follow up with respondents, get back to unhappy buyers immediately to resolve their problem, and let the happy ones know you forwarded their compliments to a grateful employee.

I recommend asking the NPS question at least two times during the customer journey: at 30 to 60 days after move-in, and again at the end of the warranty period.

NPS is a better top-line measure for builders because you can link it to financial metrics and make a business case for investing in customer experience initiatives.

When you know the value of a referral sale via NPS, there are many ways to use the data. You can calculate the return on investment (ROI) for moving a customer from Passive to Promoter status. Or, similarly, you can calculate the value of moving a Detractor to a Passive to reduce the number of negative reviews about your company, which can erode your market share.

I believe if you were to only ask one question in your homebuyer surveys, NPS should be it. Then ask “Why?”

Providing Context: NPS + ‘Why?’

NPS data is quantitative, which means it doesn’t provide context unless you include the open-ended follow-up question: Why do you feel this way?

The data derived from the “Why” question is more difficult to analyze but is absolutely worth the effort. That’s because when you segment your Detractors and look at why they’re unhappy, patterns emerge as root causes that need to be addressed. The same thing goes for Promoters and their root causes. The combination of NPS + Why will generate insights any builder can understand and act on immediately.

When Home Builders Should Ask the ‘Ultimate Question’ During the Customer Journey

I recommend asking the NPS question at least two times during the customer journey: at 30 to 60 days after move-in, and again at the end of the warranty period.

Warranty is a critical part of the customer experience, but it tends to be managed differently from buying and building. Yet it affects a buyer’s likelihood to refer as much or more so than the other two stages.

NPS can be the most useful customer experience metric for builders, but there are limitations. With such a long buying/building process, the data sample may be small, especially early on, and one bad response can dramatically skew the score, so be patient while your data sample grows. Understanding this dynamic, it’s best to analyze NPS data quarterly as a rolling six-month average.

Ultimately, NPS is a look in the rearview mirror. If you’ve lost a customer’s loyalty by move-in or warranty, it’s tough to get it back. So I recommend supplementing NPS with quick, pulse-check surveys that allow you to course-correct when buyers hit bumps along the way.

What Is a Good NPS Score?

As a widespread metric across industries, there’s plenty of data available to benchmark your business. Here’s a general guide:

  • Above 0 is good
  • Above 20 is favorable
  • Above 50 is excellent
  • Above 80 is world-class

According to a study by our firm in 2020, the average NPS for home builders is 31.1*—so generally very good.

*2020 Home Builder NPS Customer Benchmark Study conducted by Bokka Group with U.S. homebuyers, fielded in conjunction with Qualtrics and Home Innovation Research Labs.

These benchmarks are helpful to understand the landscape, but I recommend establishing your own baseline NPS with six months’ to a year’s worth of data, or through a one-time NPS survey with past buyers, from which you can set goals for improving the trend over time.

The most important thing about NPS is to act on the feedback you get to increase referrals and positive reviews. Builders that understand this powerful tool and use it to build a customer-centric culture will be positioned for accelerated growth in any market.

 

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Written By

Jimmy Diffee, principal of Bokka Group, monitors a wide range of home building trends. He sees and judges technologies and digital content for new home builders at events and competitions such as PCBC Speaker Sessions, the National Sales & Marketing Awards, and the International Builders Show Best of IBS Awards. Jimmy is author of the annual Home Buyer Conversion Report, the industry’s leading research showcasing technology’s influence on new home sales. Write him at jimmy@bokkagroup.com.

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