Date: November 2, 2018
3PL warehouses looking to grow should always focus on their customers’ satisfaction first. Happy customers remain loyal, write great reviews, and even refer new prospects. The last two are especially important because word-of-mouth recommendations are the most trusted source of advertising for 83% of all respondents of the Nielsen Global Trust in Advertising Report1.
Yet, many 3PLs may not know where they truly stand with their customers. The good news is that there is a way to find out and it starts with perhaps the single most important question your 3PL should be asking your customers:
“How likely is it that you would recommend our company/product/service to a friend or colleague?”
That question is actually the basis for one of the most critical ratings in the business world today – your company’s “Net Promoter Score” or NPS. NPS assumes that more than just customer satisfaction, a customer’s willingness to recommend a service to a friend is the single most important indicator of customer loyalty, and is correlated directly with success. Used by more than two-thirds of Fortune 1000 companies, NPS is a useful predictor of growth among competitors2. In fact, according to the book “The Ultimate Question 2.0” by Fred Reichheld, companies that score highly in NPS outgrow their competitors by an average of 2.5 times3.
While metrics like inventory turnover ratio or On-Time In Full (OTIF) delivery are important benchmarks to have, it doesn’t matter as much if your customers aren’t happy in the end. You may still lose the business to competitors, fail to get referrals, and, without insight into your customers’ experience with your service, struggle to grow.
To ensure that your 3PL business has a full understanding of this important standard, 3PL Central has created a simple guide for you to follow so you can become an expert on how to manage your customer experience and satisfaction. As an added bonus, download our sample template and find out your NPS score today.
As a customer of any company yourself, you may have received requests for follow-up surveys via phone or email regarding your experience with a transaction - that’s the NPS at work. More than a way to track customer satisfaction, it is a metric for customer experience as a whole, and how successful you are in building a relationship with your customers. NPS is a management tool that can be used to gauge the loyalty of a firm's customer relationships and a way to measure customer experience. It serves as an alternative to traditional customer satisfaction research and has been correlated with sustainable revenue growth.
NPS is based on your customers’ responses to the aforementioned question: “How likely is it that you would recommend our company/product/ service to a friend or colleague?”. This question is usually sent as a survey to a list of customers via email.
The scoring for this answer is based on a 0 to 10 scale, with a follow-up question to expound on their answer: “What is the most important reason for your score?”
Once all results have been gathered, the customers will be segmented as follows:
Those who respond with a score of 9 to 10 are called Promoters who can solicit referrals, future business, and feedback to improve your business.
Responses of 7 and 8 are labeled Passives, as their behavior falls in-between4 and can easily be swayed by competitive offers.
Those who respond with a score of 0 to 6 are labeled Detractors who can become reluctant customers.
Your Net Promoter Score is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. Passives count toward the total number of respondents, thus decreasing the percentage of detractors and promoters and pushing the net score forward5.
NPS = % of promoters - % of detractors
So, if you surveyed 10 customers, and eight were promoters and two were detractors, 80% would be promoters, and 20% would be detractors. The formula for your NPS calculation would be:
NPS = 80% - 20% = 60
A Net Promoter Score can be as low as −100 (where everybody is a detractor) or as high as +100 (where everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is excellent.
The 2016 NPS Benchmarks Survey Report by CustomerGauge reveals that Transportation and Logistics companies have 50% or more Net Promoter Score on average.6
We live in an age where the customer is king. Your 3PL clients today have more options than ever before – making them more likely to switch providers if they are unhappy. This is true with almost every business today.
What’s more, customers now have far more ways of broadcasting their feelings to the rest of the world. These include multiple social media properties, as well as formal ranking services like Yelp and Google Ratings. This is great news if your customers are happy. But can be not so great if they are not satisfied. In fact, a recent America Express study found that customers were three times more likely to share a bad review than a good one.
The second part of the NPS survey, where customers are asked to expound on their rating by answering “What is the most important reason for your score?”, is just as important in bringing the voice of your customer to the front. Asking an open-ended question provides customers the permission to be honest in their feedback. Constructive criticism is important as it provides a deeper understanding of issues that your customers face on a daily basis, which gives you the right tools to handle their and future customers’ expectations moving forward. You also get exposed to errors your 3PL can correct quickly, and adjustments to your workflow that you would not have thought about before.
Zappos, the B2C online shoe and clothing retailer, is known for exceptional customer service (their longest customer service call on record lasted 10 hours and 29 minutes), and they often refer to themselves as a “Service Company that Happens to Sell Shoes.” CEO Tony Hsieh attributes their success to their customer-centric culture that encourages going above and beyond for their customers, and using NPS to gain constructive feedback about how to do better every day – and actually following that feedback. In 2017, their Net Promoter Score was 83% for online surveys and 93% after talking to a representative. Their NPS is one of the highest across all industries.
“It’s all about delivering happiness to customers and employees. And fun is one element of what makes people happy. At Zappos, we use NPS every day to make sure we’re WOWing both our customers and our employees.” – Tony Hsieh, CEO at Zappos
And it works – Zappos earned their first billion in 2008, two years earlier than predicted, and got acquired by Amazon for $1.2 billion in 2009. They’ve been growing steadily and wowing customers ever since.
3PLs are still relatively new to the world of NPS. As such, there is a lack of consistent public data for our industry. And the data that is available can vary widely. Some monitoring groups have reported an average logistic industry score of “56”8 – whereas others say our NPS industry average is “0”9.
This erratic information makes it difficult for a 3PL to compare itself directly to its competition. But in the NPS and customer satisfaction world, the most important comparison is not with your competition - but with yourself and your own performance10.
The best benchmark for your 3PL, therefore, should be your NPS score from last year.
Knowing and tracking your 3PL’s Net Promoter Score can have a huge impact on your ability to grow for the following reasons:
In order for your warehouse to capitalize on the simplicity of implementing NPS across your business, follow these three rules:
We hope this overview of Net Promoter Scores will give your 3PL insights into new ways it can improve its customer satisfaction levels and grow. For more information about how you can expand your clientele and profitability, download our “Practical Guide to Growing Your 3PL Warehouse.”
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3PL Central provides cloud-based WMS solutions for 3PLs so they can transform paper-based, error-prone businesses into service leaders focused on customer satisfaction, efficient operations, and growth.