It’s likely that you’ve used or at least heard about a number called Net Promoter Score (NPS). You may already understand how it’s calculated or know how to run an NPS survey, but what you may not know is how powerful this metric can be for your business if used correctly. NPS, or Net Promoter Score, is a powerful tool used to track customer loyalty and gauge customer lifetime value. It is based on asking one simple question:
“How likely are you to recommend us to a friend or colleague?”
The power of NPS is not just its simplicity but it’s also how you use it. This post is the first out of three-part series to walk you through best practices and how to best utilize NPS to drive growth.
What is Net Promoter Score?
Net Promoter Score ranges between -100 and 100. What that means is, if all customers gave a score lower or equal to 6, the NPS result would be -100. On the opposite end of the spectrum, if all customers rated the question with a 9 or 10, the Net Promoter Score would be 100. NPS surveys first asks the single question, then prompts the customer to rate a score between 0 and 10. Based on the customer’s rating, they are then classified into one of three buckets: detractors, passives or promoters.
Promoters, Passives and Detractors
Promoters (9-10) are best described as your brand ambassadors who are loyal and enthusiastic about your brand. Passives (7-8) are neutral with your brand and most likely won’t tarnish your brand reputation. Detractors (0-6) are assumed to be dissatisfied customers who can damage your brand through negative word of mouth.
How to calculate your NPS
Once you have classified your customers into the respective groups, you are ready to calculate your company’s Net Promoter Score. Here’s how you do it:
Company NPS = % Detractors – % Promoters x 100
Tracking your NPS over time will help you determine your progress in improving your customer satisfaction and loyalty.
What’s considered a “good” Net Promoter Score?
In general, any NPS over 30 is considered good, over 50 is great, and over 70 is excellent. However, before you set your target goal of getting a NPS of 70, you should consider your industry, product offering, and price positioning. Because each industry is unique, there is no single number that will determine what is a “good” score.
For instance, the retail industry upholds different customer expectations than the manufacturing industry. Even among telecommunication service providers, it is unique even in its own competitive environment. For example, the biggest cable providers in the United States have a negative NPS, meaning, there are more unhappy customers than happy ones, but since the industry is monopolistic, many detractors are forced to continue their service without other options. In other industries that have more competition, such as food and beverage shops, customers can easily switch from one to another.
So then what?
A positive NPS signifies that you have more customers organically recommending your product or service than customers deterring others from your company. If you have a negative NPS, the effect is the opposite. In general, there are various ways to determine a “good” Net Promoter Score.
The two basic methods are:
1. Industry or competitive benchmark
This is the most common method since NPS is measured against the most relevant set your customers can choose. The competitive NPS benchmark surveys not only your own customers but also of your competitors. Using this NPS will give you a clear idea on where your company stands in comparison to your customer’s choices.
2. Improvement over time
If you don’t have industry scores available, the next best way is to compare your company NPS over time and to isolate changes, such as changes in customer mix.
What does the Net Promoter Score mean?
A higher NPS indicates a more sustainable and healthier business, while a lower NPS can be a warning into customer loyalty or satisfaction issues that can derail your business in the long term.
Bain and Company, who had originally developed the Net Promoter Score, researched and found that for most industries, the NPS accounts for 20% – 60% of an organization’s growth rate. On average, the leader in an industry has the NPS more than 2x its competitors. (Source: NPS and growth)
How to utilize NPS more effectively
Understanding your Net Promoter Score provides insight to how your customers perceive your company. To start, measure your NPS against your industry benchmark if available. If not, start a campaign to send out your first NPS survey and treat the first set of results as your baseline for improvement. As you begin improving your NPS, be sure to focus on increasing your response rates to collect more data to learn more about your customer’s experience.
Here’s a few ways to start using NPS today:
Map NPS into your customer’s profile to equip your support team to answer questions knowing exactly how your customers feel
Create reports filtered by NPS rating to understand customer segments
Identify your passives and turn them into promoters
Conduct spending analysis on your high-value promoters
While conducting analysis with the NPS data collected is important, it is also critical to have a closed-loop feedback system. Your frontline employees need to be able to act upon real-time feedback from customers to improve and act on the information obtained. A good closed-loop system should give you the process and tools needed to automate follow-up and alerts with dissatisfied customers to “close the loop” and take proper action.
The bottom line
There is no single question that can forecast your company’s success. Understanding your customer’s sentiment about your company is the first step in taking an analytical approach to begin improvement. Complement NPS with other insights such as interactions across the customer journey with a closed-loop feedback system, you will have a comprehensive and actionable view of your customer experience performance that empower your organization to retain and grow your customer base.
Stay tuned for part two of this NPS series: Ways to use NPS to grow and analyze your business
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