How Important Is It to Measure Your Net Promoter Score (NPS)?

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The Net Promoter Score (NPS) measures how customers feel about a company, brand, product or service. The initial research in 2003 that led to the NPS metric asked customers a series of questions designed to elicit their feelings about the company. The researchers, Fred Reichheld of Bain & Company in collaboration with the company Satmetri, wanted to find a question that would correlate with real-world customer behaviors. For instance, for a company to grow, it needs customers who recommend the company to others; customers who become repeat buyers; customers who don’t constantly shop around for the best price. The researchers tested many questions with customers, trying to find the one question that would identify those most desirable and engaged customers.

The Bain & Company research team found one question identifying that desirable block of customers more accurately than any other. It became what the researchers called “the ultimate question,” because it was so powerful in predicting customer behavior. In 11 of 14 mature, major industries where it was tested, that question revealed more customers in the desired block than any other. In the three industries a different question was slightly more effective, but “the ultimate question” scored so closely that it became the standard question used to compute the Net Promoter Score across all industries.

NPS is a metric that measures customers’ willingness to recommend the organization, brand, product or service to others. As such, it gives a score to the customer’s experience and loyalty. More than two-thirds of the Fortune 1000 use NPS as one of their measurement tools.

Bain & Company have found that “…companies that achieve long-term profitable growth have Net Promoter Scores two times higher than the average company…and leaders on average grow at more than twice the rate of competitors.”

At the end of the day – companies that can drive a significant portion of new business from current customers and by gaining referrals from those customers are at an incredible competitive advantage. In discussing the critical factor of customer service on that outcome, Matthew Hooper, Chief Revenue Officer at ProV International, shared that: “It is a business imperative.”

“There is the old saying: ‘If you do not service your customers, someone else will.’ Customer service quality is not only a direct correlation to repeat customers, it is also a major factor in the NPS (Net Promotion Score) that leads new customers to you. Failing to meet customers’ expectations in this digital age is a sure way to reduce volume business and send your customers running to your competitors,” said Hooper.

What Is the Net Promoter Score (NPS) Definition?

The Net Promoter Score is a number ranging from -100 to +100. A score of 0 (zero) or greater is considered “good.” The “average” U.S. company scores less than +10 according to Reichheld, while scores of +50 are considered “excellent” and scores of +80 are considered “world class.”

How Is the Net Promoter Score (NPS) Calculated?

The thinking behind NPS assumes customers fall into three categories: Detractors, Passives and Promoters. The calculation is made by asking “the ultimate question,” then tallying results. The “ultimate question” is:

On a scale of zero to ten, how likely are you to recommend (company, brand, product, service) to a (friend, colleague, relative)?

The formula for calculating NPS is simple: NPS = % of Promoters – % of Detractors

Therefore, if we asked the “ultimate question” of 80 customers, we might find a distribution like this:

35% Promoters answered 9 or 10.
30% Detractors answered 0 to 6.
35% Passives answered 7 or 8.
Based upon this breakdown,
NPS = 35% – 30% = +5.

So what does a company do with this metric? While the score itself is useful, the real value comes from drilling down with those customers in the Passive and Detractor categories. Companies that use NPS require their customer-facing teams to ask additional questions of those in the Passive and Detractor categories. For example, “What led you to rating our company/product/service as a ‘4’?’” can reveal specific complaints a customer had, which gives management the data it needs to take corrective action. The practice of seeking out dissatisfied customers, uncovering their concerns, then fixing them is what gives companies that use NPS so much value.

Impact of a Poor Net Promoter Score (NPS)

While achieving high levels of customer satisfaction is the goal of every service desk, NPS gives a broader view of how customers value the company. It measures the quality of the customer experience and the degree of loyalty a company can expect from its customer base. Negative NPS values (where Detractors outnumber Promoters) call for management to take positive steps to understand how it can correct the problems that led to poor ratings.

At the same time, NPS scores may suffer from flaws in the basic NPS design. For instance, customers can say they will recommend a company, but NPS doesn’t prove they actually do. One can have a warm, positive feeling about a company but may never recommend the company to others.

Furthermore, some marketing experts argue that the formula for computing NPS treats people who give a score of zero the same as those who score the company with six, even though there is a clear difference in the perception of such customers. Likewise, a company might find their customers are 60% Promoters and 30% Detractors—versus 30% Promoters and 0% Detractors. Both result in an NPS of +30 despite what are obvious differences between the two customer groups.

How to Monitor the Net Promoter Score (NPS) & Engage Customers Providing Feedback

Once you have established a method for collecting customers’ perceptions of your company, product or service, you should have the NPS displayed in real-time as well as track it for trend analysis. You should also track NPS with other measures of customer perceptions—metrics like CSAT and CES, along with a Voice of Customer Program and social listening, noted Sean Hawkins, Group Manager of Customer Success at UBM, Top 50 ICMI Thought Leader and author at Call Center Weekly. But it’s equally important to have a plan for what you do with the insights gleaned from results.

“It’s not enough to have this abundance of data, if you aren’t going to do anything with it. Why measure, if there is no follow up action? Reach out to customers when they provide feedback. Thank them! Inform them of the improvements, which resulted from their feedback,” said Hawkins.

Service support managers also need a real-time understanding of support center performance and their associated personnel and activities. Reports on service support performance need to be generated on a routine basis, standardized across multiple support centers and be made available between multiple levels of management.

Utilizing performance analytics is recommended to proactively monitor the effectiveness and efficiency of your service support centers and make confident business decisions based on real-time data and trending. By connecting to multiple technologies and centrally monitoring all your support centers and staff with a single prescriptive dashboard, you can make proactive decisions to minimize risk and maximize your budget. The customer experience will continually improve by monitoring your resources and the impact they’re making.

This article was originally published on the RDT Metrics blog and reprinted with permission.

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