The Builder’s Guide to Measuring Customer Loyalty [Unlocking The Power of NPS]

As a business owner in the homebuilding or trade industry, it’s crucial to measure the success of your operation with the right metrics. For example, you might be focused on the cycle time, homes delivered, or starts per year, which are all critical factors for ensuring efficiency and profitability.

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However, one key performance indicator that often goes overlooked but can significantly impact your business: is the Net Promoter Score (NPS).

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While the cycle time and home-delivered metrics help you track your operational efficiency & throughput, NPS can measure your customers’ satisfaction and loyalty. It tells you how likely they are to recommend your homebuilding services to others, a powerful driver of growth and success in this industry.

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Understanding NPS: What is it, and how does it work?

Net Promoter Score (NPS) is a highly regarded metric that helps companies measure customer loyalty and develop growth strategies, it is now widely used by two-thirds of Fortune 1000 companies. You’ve heard the NPS question: “How likely are you to recommend this company to a friend or colleague?” Respondents rate their likelihood on a scale of 0 to 10, with 0 indicating “Not at all likely” and ten meaning “Extremely likely.”

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Despite its simple nature, the NPS question is a powerful tool. It’s easy to understand and provides a broad range of responses. For example, when conducting surveys with homebuyers, asking the NPS question should be a top priority. And don’t forget to follow up with the “why” to gain valuable insights into your customers’ experiences.

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The Calculation Method of NPS Holds the True Strength of the Metric:

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Those who answer 9 or 10 are classified as “Promoters,” meaning they are enthusiastic and loyal supporters of your brand.
Respondents who answer 7 or 8 are categorized as “Passives,” indicating they may be satisfied customers but are not actively promoting your brand.
Those scoring from zero to 6 are identified as “Detractors,” Their negative reviews and word-of-mouth can potentially harm your brand.

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Analysts subtract the percentage of Detractors from Promoters when determining the Net Promoter Score (NPS) to derive the final score. In theory, the NPS could range from -100, which implies that all customers are Detractors, to 100, indicating that all buyers are Promoters. A score of zero suggests that the percentage of Promoters is equivalent to that of Detractors.

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Expanding Customer Feedback Beyond Binary Responses

An alternative version of the NPS question yields less valuable results than the scaled version. This version asks a binary question with a simple Yes or No answer: “Are you likely to recommend us to a friend or colleague?” While this approach can provide a precise number of potential referrers, it misses out on nuances regarding the likelihood of customers actively advocating for your brand, making it less reliable.

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It’s essential to consider the gray area between Detractors and Promoters, which the scaled NPS accounts for but the Yes/No version does not. In reality, most Passives taking your survey may hesitate to give a negative answer, resulting in a bias in your data.

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Are your average satisfied customers actively referring friends to your homebuilding or trade business? While the Yes/No question may provide a handy benchmark, it doesn’t comprehensively understand your customers’ likelihood to promote your brand.

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“What if I Already Measure Customer Satisfaction?”

Builders often wonder if measuring Customer Satisfaction [CSAT] is the same as measuring Net Promoter Score (NPS). They are not the same, at least not as an overall indicator of customer loyalty. While the CSAT question “How satisfied are you with our product or service?” helps identify short-term improvements, it’s unsuited for longer-term strategic planning. For example, builders can use the CSAT question after an interaction, such as a design studio appointment, to improve that aspect of the home-buying process. However, it’s essential to follow up with respondents, address any issues that unhappy buyers have and thank satisfied ones.

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To measure customer loyalty, I recommend asking the NPS question at least twice during the customer journey: 30 to 60 days after move-in and at the end of the warranty period. NPS is a better indicator for builders because it links to financial metrics, and you can use it to make a business case for investing in customer experience initiatives. By knowing the value of a referral sale through NPS, builders can calculate the return on investment (ROI) for moving a customer from Passive to Promoter status or for moving a Detractor to a Passive to reduce negative reviews that can harm your market share.

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If builders were to ask only one question in their homebuyer surveys, NPS should be it. Then, follow up with a “Why?” question to get insights into what drives customer loyalty.

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Adding Insight to NPS: The Power of Asking “Why?”

One thing to remember is that NPS data alone does not offer many contexts. However, by following up with an open-ended question like “Why do you feel this way?” you can gain valuable qualitative data. Even though analyzing this data may be more challenging, it is worth it. By segmenting Detractors and identifying the reasons behind their negative responses, patterns, and root causes emerge that need to be addressed. Similarly, Promoters can provide valuable insight into what is working well. By combining NPS with the “Why” question, builders can gain meaningful insights that they can act on immediately.

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Determining the Best Time for Home Builders to Ask the “Ultimate Question”

To effectively measure customer experience, I suggest asking the NPS question twice during the customer journey, precisely 30 to 60 days after move-in and the end of the warranty period. While warranty may be managed differently from buying and building, it significantly impacts a buyer’s likelihood to refer, making it a critical part of the customer experience. However, as NPS is a long-term metric with a lengthy buying/building process, the data sample may be small, and one negative response can skew the score dramatically. Therefore, analyzing NPS data quarterly as a rolling six-month average is best.

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While NPS is an essential metric, it’s crucial to supplement it with quick, pulse-check surveys that help identify and address potential issues. Doing so lets you course-correct promptly and avoid losing a customer’s loyalty. Ultimately, NPS provides a rearview mirror perspective, and it’s tough to regain customer loyalty after losing it.

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