The Net Promoter Score (NPS) was established by Bain & Company in 2003 to help companies measure and evaluate customer loyalty. Fred Reichheld, a partner at Bain & Company, created a new way of measuring how well an organization treated the people whose lives it affected.
The NPS works by sending a quick, one question survey to your customers that asks them;
“How likely is it that you would recommend Company X [or Product X] to a friend or colleague?”
The question has a 1-10 rating scale for respondents to answer. With 10 being extremely likely to recommend and 0 being not at all likely. See a diagram below to visualize it better.
Diagram shows how to calculate your NPS (photo credit)
The Net Promoter scores are then broken down into three categories:
- “Promoters” are loyal customers who keep buying from a company and urge friends to do the same (scores of 9 and 10)
- “Passives” are satisfied but unenthusiastic customers who can be easily wooed by the competition (scores of 7 and 8)
- “Detractors” are unhappy customers who are ‘at risk’ and spread the majority of the bad word of mouth (scores 6 and below)
Calculate your Net Promoter score by finding the percentage of “Promoters”, then subtracting the percentage of “Detractors”. The final percentage is your NPS.
For example, if a company has 60% Promoters and 10% Detractors; their NPS is 50%.
See also: How Net Promoter Scoring Works
Why NPS is important
- Promoters account for 80 percent of referrals in most businesses. (Net Promoter System, 2013)
- Detractors account for 80 percent of negative word-of-mouth. (Net Promoter System, 2013)
- Promoters generally defect at lower rates than other customers, which means that they have longer, more profitable relationships with a company. (Net Promoter System, 2013)
- On average, an industry’s NPS leader outgrew its competitors by a factor greater than two times. (Net Promoter System, 2013)
Now you know what the Net Promoter Score is and why it’s important, let’s look at six benefits you can get from using it.
1. Measure, evaluate and build customer loyalty
NPS is a better way to measure customer loyalty. The system recognizes that measuring customer satisfaction isn’t enough, companies must understand how loyal their customers are in order to better gauge how happy they are.
No other system lets you link improvements in customer loyalty to actual business outcomes. By asking just one question you can gauge an accurate level of how happy your customers, then in six months’ time ask the same question and see the changes. This gives you accountability, you can see if what you’re doing is having a positive or negative impact on the customer experience.
Popular post: 18 strategies to build customer loyalty
2. Increase customer satisfaction
Most companies want customers to be happy; the challenge is how to know what customers really think about you. NPS gives you the metrics to better effectively measure customer satisfaction, so that you can work on ways to increase it.
Since you can track customer happiness using NPS from one survey period to the next, you’ll be able to see if the strategies you’ve implement have improved customer satisfaction or had a negative impact.
3. Create more customer advocates
The NPS score gives a good indication of how many of your customers are advocates. A NPS score of 50% is considered pretty good, with half of your customers to be considered ‘promoters’, actively telling others about your product or service.
Using NPS regularly means you can see if you’re creating more customer advocates or losing them. Successful businesses leverage customer advocates to spread positive word of mouth and send referral leads.
4. Get more customer feedback by closing the loop
Actionable customer feedback enables companies to improve their product or service. NPS ‘closes the loop’ by encouraging customers to leave additional feedback based on their score. This feedback is shared back through your employees so you can proactively address problems and focus on creating a customer experience that boosts satisfaction.
Use the opportunity to ask additional questions that dig deeper into the root causes of a customer’s problems. This will help you fix the problem and help put processes in place to stop it happening to other customers.
See more: 19 customer feedback strategies
5. Reduce customer churn
Research by Bain and Company found that promoters generally defect at lower rates than other customers. This means that they have longer, more profitable relationships with a company.
With customer acquisition costs increasing, reducing customer churn is a sustainable way to grow your business. Knowing that promoters churn less means you can invest more in creating an amazing customer experience that turns more ‘Passives’ and ‘Detractors’ into ‘Promoters’.
Detractors are your biggest headaches. Work on reducing the percentage of defectors to improve your NPS and grow your business.
Read more: How to improve your customer churn rate
6. Drive revenue growth and boost customer lifetime value
NPS lets you focus on creating more promoters inside your business. Promoters are powerful; here are some facts from Bain and Company about why promoters drive revenue growth.
- Promoters churn less and have a higher customer lifetime value.
- Promoters increase spend more than detractors, they are interested in new offerings and using one supplier.
- Promoters are less price sensitive, they’re not always looking for ‘the best deal’.
- Promoters typically cost less when it comes to selling, marketing and advertising. They also have bigger average order sizes.
- Promoters account for 80-90% of referrals. More promoters equal more referrals.
A Bain study of affluent banking customers, for example, found that promoters are worth an average $9,500 more to a bank than detractors. – Loyalty Insights, Net Promoter System
Photo Credit: Net Promoter System
Net Promoter Score makes the customer experience accountable
The customer experience is what WOW’s your customers. Using the Net Promoter Score you can hold yourself accountable for the level of service and the overall experience being delivered. By asking just one question, you open the doors up and can get customer feedback that tells you what your customers really think. Leverage the NPS to dig deeper and use the actionable insight to make better informed business decisions that boost customer satisfaction and build sticky, loyal customers.
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