What is a Net Promoter Score?
For someone who has been in the B2B or B2C circle, the word Net Promoter Score (NPS) might be a familiar term. Though having heard of it, yet people and brands alike don’t have clarity on the same.
Let’s dive into the topic with keen eyes and sharp ears!
Net Promoter Score or NPS is a customer satisfaction metric which measures the willingness of the customers to recommend a product or service to their family and friends.
In case you are wondering what Customer Satisfaction is, it refers to the fulfilment and contentment level of your customers with your brand.
Customer satisfaction is a precursor to customer loyalty.
In layman terms, customer loyalty is the customers’ inclination to buy your brand’s product or avail your service and choosing you over your competitor.
NPS is a simple way to evaluate customer loyalty.
Net Promoter Score or NPS is solely focused on quantifying the overall customer sentiment as opposed to a single purchase or interaction. Customer sentiment is the feeling and attitude expressed by a customer towards a brand. It can be positive, negative, or even neutral.
It is based on one simple question, “On a scale of 1-10, how likely are you to recommend our product to your friends and family?”
Where the respondents are grouped into three categories based on their scores.
Happy customers are the apple of the eye for any business. Folks who rate you either a 9 or 10 are called Promoters.
Positive experiences by customers make them loyal and positive advocates of your brand. Customers patronize a brand if they feel satisfied and content using a product.
Customer satisfaction and brand loyalty are terms which sum up the traits of the promoters.
Detractors are disgruntled customers who rate you anywhere between 0 to 6.
Heartbreaking, isn’t it?
Detractors always keep brands on their toes because they are in all likelihood going to voice their unpleasant experience through online reviews.
When this happens, the online reputation of a firm is tarnished with other potential customers becoming wary of buying your product or service.
Your NPS will veer off in the negative direction if your detractors are more in number. It means your business is at risk of losing your valuable and loyal customers. For such brands, delivering good customer experience becomes the need of the hour.
Reducing the number of detractors will give you a positive NPS. Your score will soar up only if you have less detractors and high number of promoters.
Further reading : Learn 7 ways to convert Detractors into your Brand Promoters.
Passive customers gives you a score of 7 or an 8 based on their experiences. Their average or mediocre experience with your brand makes them the least enthusiastic of the lot.
While this might come as a surprise, but passive customers neither leave negative nor positive reviews. They aren’t the most vocal customers out there.
Origin of NPS
The business world needed a metric which could easily measure the relationship a business has with its customers. The wait finally came to an end in 2003, when Fred Reichheld came up with Net Promoter Score (NPS) after a research spanning over four decades.
Reichheld in his Harvard Business Review article, The One Number You Need to Grow mentioned that the need arose because most customer surveys are futile because of low response rate and ambiguous implications. It was thus difficult for operating managers to act based on just surveys.
Furthermore, it isn’t scrutinized thoroughly because of the laid back attitude of the senior management. The reason was that they aren’t linked to profits and growth.
A gold standard for measuring customer satisfaction, NPS has grown over the years emphasising the need for employee commitment and engagement in delivering quality customer experience which improves customer satisfaction and brand loyalty.
Need for Net Promoter Score
1. NPS measures the probability of recurring business
As stated earlier, Net Promoter Score is an ideal to measure customer satisfaction. Since it gauges the inclination and willingness of a customer to recommend your product or service to friends and family, it means that there is a potential opportunity of recurring purchase.
NPS is useful in predicting business growth, cash flow, and gives a holistic view of the health of your brand.
Think of it, only if you prefer a particular brand’s product or service, will you advice others to go for it, won’t you? Basic common sense.
2. Aids in self improvement
While it is good to compare with the industry standards and competitors, self improvement can be a great confidence booster for the team. Tracking changes over a time period can help assess performance.
Customer feedback through Net Promoter Score should be taken once in six months or three months so that there is frequent interaction between the business and the customer.
Exciting, isn’t it? Now let us learn to calculate NPS. Don’t worry it isn’t rocket science.
How to calculate Net Promoter Score?
To calculate NPS, the following formula is to be applied.
Net Promoter Score = % of Promoters - % of Detractors
% of Promoters = No. of Promoters / Total No. of survey respondents.
Similarly, % of Detractors = No. of Detractors / No. of survey respondents
For example, you sent an NPS survey to 500 people and out of which only 300 people responded. Out of the 300 who responded, 120 were Promoters, 80 were Passives, and 100 were Detractors.
Now, as stated earlier, leave out the Passives (We will explain that later.)
Using the above formulas, we arrive at the following percentages.
% of Promoters = 120/300 * 100 = 40
% of Detractors = 100/300 * 100 = 33.34
Therefore, your NPS = 40 - 33.34 = 6.66
Simple and easy, isn’t it? Next, we shall see the types of NPS surveys.
Types of NPS Surveys
Net Promoter Score isn’t limited to a standard type. It has two types based on the goal that you are trying to achieve. It is based on the functions and getting to know each of the types can help you making smart decisions.
1. Relational/ Relationship surveys
Relational surveys as the name suggests measures the overall customer perception of your organization. It gives you a peek into the level of brand loyalty and customer satisfaction of your customers.
Relational or relationship surveys are actually sent out in large numbers because of their nature. It is helpful in measuring the working relationship and not a specific interaction.
It is a scheduled survey which is sent either twice annually or once every quarter.
Surveys which are relational are helpful in measuring improvements over the course of a year and the existing industry NPS.
2. Transactional Surveys
Transactional surveys are used to measure specific interactions a company has with its customers. It is used to measure customer satisfaction at the lowest level.
As evident from the name, they are used to assess the quality through feedback after an installation, support ticket, product updates or a repair. It allows firms to focus on the various touch points at every stage of interaction with the customers.
The key benefit of transactional surveys is that it offers a microscopic view for each of the departments to track improvements and metrics to measure.
Which is better - Relational or Transactional Survey?
There is no straight answer to the question as both are equally important. The choice of the survey is entirely dependent on the metrics that you want to measure. Both complement each other and both must be used based after a careful analysis beforehand.
Also read: 25 tips to increase NPS survey response rate
Benefits of using Net Promoter Score
1. Simple to follow
NPS is not complicated. It doesn’t include any jargons and all the survey questions are asked in a simple and lucid language. Both the customers and staff can easily interpret it.
2. Influences business outcomes
Any metric is useless if it doesn’t drive growth. Net promoter score has been proven to be a metric driving growth and revenue.
Philips tracked NPS for a couple of sample accounts. Based on their observation, here are the findings
- Revenue saw a staggering growth of 69% where there was a higher NPS
- Where NPS remained constant, there was a slight increase of 6% in revenue
- Here is an astonishing fact! Revenue fell by 26% where was a decline in NPS
3. Easy to benchmark
NPS is a standard customer satisfaction and loyalty metric used by businesses worldwide. It is, therefore, easier to benchmark your NPS against those of your competitors. Even the industry average can be easily benchmarked against.
4. High response rate
Since NPS is simple and easy to understand, it hardly takes more than a few seconds to answer them. Even if the survey population is less, it definitely can point you out in the right direction.
Just like most things, even NPS has its own set of limitations.
Also read: Net Promoter Score vs CSAT - What should you use for your business?
Limitations of Net Promoter Score
NPS too has its limitations. It is far from perfect but it is pretty underrated in understanding customer satisfaction, brand loyalty, and customer loyalty. Find the limitations below to be aware of the same.
1. Sample Size is less
The bigger the sample size, the greater will be your insights. If your sample size is less, the scope of the margin of error will be great. To reduce the same, you will have to increase the sample size.
2. Respondent bias
Whom you ask and what you ask matters the most when you are looking for answers pertaining to customer satisfaction and brand loyalty. If you are sending out surveys to your existing customers, the data might be skewed in favor of you.
One drawback of doing so is that you will never be able to find answers for the customer churn rate that is affecting your business.
Another harsh truth is that fact that the questions presented shouldn’t be ambiguous. Confused customers are the last things that your business wants because the answers won’t guide you in the right direction.
3. It does not give deeper insights
NPS is pretty simple. It measures customer satisfaction, brand loyalty, and the relationship with your customers. All the questions are straightforward and to the point.
It only asks the likelihood of your customers recommending your product or brand to others. It does not give answers about customer churn and other things you would want to know.
Though some criticisms of NPS are valid, there are others which are baseless. Some myths regarding NPS have been debunked. Next up are the steps to be followed to successfully implement an NPS survey
Doing anything for the first time can be difficult, but following the below steps can help you get started smoothly.
1. Form an appropriate company structure
Get your organization and senior management aligned and communicate the benefits of introducing the NPS survey. Keeping them in the loop can ensure your Net Promoter Score will head in the right direction and not come to an abrupt stop.
Clarify and address any employee concerns and tell them the added benefits by setting goals that form a part of the bigger picture. There should be no ambiguity or confusion related to each employee’s role or contribution.
2. Design your Data Collection Process
Research your customer journey process and find the various customer touchpoints at each stage of the customer lifecycle process.
You will want to find answers to the below questions such as
- What are the touchpoints in the entire customer lifecycle? Customer journey mapping will help you find your answers.
- What is the number of customers that your business has?
- Who is important and whom to send the NPS survey?
These are the common questions but as you venture deeper, you will find other questions that will aid in your NPS process.
Your focus should be on ensuring that your customers are surveyed without much impediments and troubles.
Based on your data collection process, form the questions that need to be asked to your customers.
3. Launch your Service Recovery Process
Service Recovery is the action taken by you to address a case of bad customer experience. Any poor score on the NPS survey should be immediately attended because you wouldn’t want it to affect your NPS, do you?
And not just the NPS survey, pay heed to feedback on digital channels such as social media sites, review websites and even employee feedback.
How to improve your NPS
1. Make use of your promoters
Promoters are invaluable assets to your business. They take a liking to the good brand experience that you provide. Promoters become your loyalists by recommending your products or services to their friends and family.
Asking them what prompted them into giving you a ‘9’ or ‘10’ can give you some vital info on delivering customer experience that yields customer loyalty. They can be good targets for upselling and cross-selling. Their contribution doesn’t end there.
Case studies and use cases can be drafted by asking the promoters to be part of it. This way the customer sentiments can easily be known.
You can also request them to drop reviews either on Google or on other review sites. Happy and satisfied customers will always oblige
2. Enquire with the Passives
Passives neither do any harm nor good to your brand. But, it doesn’t that mean that they are to be ignored. Their experiences maybe average but they still do tell some things which might help you better.
Enquiring with them can help you in retargeting and strategize your marketing efforts.
3. Reach out to Detractors
Interviewing detractors can help you know the reasons for rating you low. Their inputs can help you make changes in your product or service thus making sure customers don’t face similar problems in the future.
Also, who knows reaching out to them might change their perception about your business and they might be willing to give you another chance.