If you are interested in using customer feedback to drive business growth, then Net Promoter Score (NPS) can be one of the key tools in your customer experience arsenal. In this post, we will look at what exactly Net Promoter Score is, why it is so popular and how you can use it effectively.
What is Net Promoter Score?
Net Promoter Score is a customer loyalty metric. It indicates how willing a customer is to recommend your product or service. It was developed by Fred Reichheld, Bain & Company, and Satmetrix Systems. In 2003, Reichheld introduced NPS in his Harvard Business Review entitled “One Number You Need To Grow”. Its popularity has grown significantly over recent years and it is now used by a huge number of organisations around the world.
Net Promoter Score is essentially one simple question: “How likely is it that you would recommend our company/product/service to a friend or colleague?
Why is it popular?
One of the reasons that NPS has gained such popularity over the last decade is that many believe it is a valuable metric for growing both revenue and profits. It is also very simple for both respondents to answer and for companies to analyse.
Also by focusing on a single metric that is highly visible and easy to understand, it allows organisations to motivate their entire staff to improve customer experience. Companies can also use NPS to flag at-risk customers and can work quickly with customers who leave low scores to address any issues raised.
How to measure NPS effectively?
As mentioned previously, NPS is calculated based on responses to one question: “How likely is it that you would recommend our company/product/service to a friend or colleague?
The scoring is based on a 0 to 10 scale. This equates to ‘not at all likely’ to ‘extremely likely’.
Those that respond with a 9 or 10 are classed as Promoters. They are usually seen as more loyal customers who will buy more, remain a customer for longer and make more positive referral to other potential customers.
Those that leave a rating of 0 to 6 are classed as Detractors. These are less likely to exhibit the same value-creating behaviours of the promoters. They can actually diminish your brand through negative word of mouth.
Those that score 7 and 8 are classed as Passives and would fall somewhere in the middle of the two sets of behaviours. They are generally satisfied but perhaps lack the same enthusiasm as your promoters.
To calculate your Net Promoter Score you would simply subtract the percentage of customers that are detractors from the percentage of customers who are promoters. Passive count towards the total number of responses, therefore decreasing the percentage of detractors and promoters and moving the net score towards 0.
NPS = % Promoters – % Detractors
NPS =(No. Of Promoters / Total Respondents) – (No. Of Detractors / Total Respondents)
NPS scores can vary from -100 (when all your customers are detractors) to + 100 (where every customer is a promoter). In most cases a positive NPS is considered to be good and anything above 50 would be regarded as excellent.
Often this question is followed up with an open-ended request for the respondent to elaborate on why they left that score. This allows companies to better understand why customers have scored in a certain way and also helps provide actionable insight so they can make positive changes.
Pros and cons of NPS
Net Promoter Score allows you to segment your customers by loyalty as well as identify unsatisfied or at-risk customers. It also allows you to benchmark against industry or competitor scores and uncover customer loyalty drivers. It is easy to complete with a fast one-question format and can be used to predict future trends.
Although Net Promoter Score has gained huge popularity, there are some that criticise it. It can be seen to provide only a limited view of customer experience and the NPS question alone doesn’t provide any specific insights. This can be negated by adding open-ended follow questions or additional rating questions.