What is a Net Promoter Score?
In customer experience management a frequently used tool is Net Promoter Score. Businesses measure the overall experience a customer has through NPS. It’s used to understand how likely a customer is to recommend your business to their friends, family, classmates, colleagues, and much more. Companies use NPS to determine the loyalty of their customer base. Businesses can partially forecast growth by NPS. Now, NPS is not a perfect measurement of these things, but it is the most common tool as well as one of the easiest to use and understand. When compared to other benchmarks such as customer satisfaction scores or customer effort scores, NPS is a little different. It’s different in that NPS focuses on a customer’s perception of the entire brand, rather than a specific interaction.
A Little Background
Fred Reichheld created the Net Promoter Score in 1993. Later adopted and popularized by Bain & Company and Satmetrix in 2003, as an approach to understanding customer behavior when it came to customer referrals as well as purchase trends. Reichheld conducted a study by sending around 20 surveys to thousands of customers in various industries. Purchase and referral behavior correlates to a sing question. Reichheld and his team found this out by narrowing down the questions on the survey. “What is the likelihood that you would recommend Company X to a friend or colleague?” The customer’s answers were then used to calculate a company’s NPS. Responses with higher scores had a stronger correlation to repeat customers, referrals, and other actions that could contribute to the growth of a company.
Why Net Promoter Score is Important?
NPS stems from a single question which had the strongest correlation to whether a customer was going to remain loyal to a company or not, and whether a customer was going to refer a business to their friends, family, and colleagues. Nearly everyone works in similar ways, especially when making decisions.
For most of us, we base our decisions on the recommendations of other people. From moving to a new apartment, choosing a major in college, or booking a hotel for a vacation. We rely on the opinions, experiences, and recommendations of those who walked before us. In correlation, businesses care about customers view them.
Word of mouth is a huge influence on whether a business will be or remain successful. Word of mouth is the difference between your businesses gaining a customer or whether your competitors do. NPS is a simple metric that allows a business to understand and even predict how its customers will behave in the future. If a customer has a pleasant perception of your brand, they will more than likely remain loyal to you and recommend you to their peers. If they have a negative perception of your brand, they will not recommend you to their peers and they will certainly not do business with you again in the future.
How to use Net Promoter Score
Your Net Promotor Score is pretty easy to understand and it’s fairly easy to use. The process of a Net Promotor Score begins with customers taking a satisfaction survey. Oftentimes, the survey will include a variety of questions, but it will always include the most important question of all: “What is the likelihood that you would recommend Company X to a friend or colleague?” The respondent is shown a scale from zero to ten, not likely to very likely. This scale provides a quantitative benchmark for a business to understand, track, and analyze across all customers over a period of time.
Because reasons for a customer’s response will vary, generally, a survey will also include an open-ended feedback section to allow a customer to detail why they responded the way they did. This allows a company to better understand what went well and what they can improve on. Though important, Feedback is not in the Net Promotor Score. Once customers provide their scores, they are gathered and grouped into categories.
The Net Promoter Score Scale
Scores ranking between zero and six are detractors. Detractors are customers who do not have a positive perception of a company. These customers will likely not recommend your brand to their peers and if given a choice, they will certainly not become repeat customers. These customers can damage a company and stint the growth of a business through word of mouth.
Customers who rank a business as a seven or an eight are neutral, or passive customers. They are those who have a relatively positive experience with a brand, but it’s not outstanding enough to have a bias one way or another. These customers do not affect a business either in a positive or negative way. Passive or neutral ratings are not a consideration when calculating NPS.
Customers who rate a business as a nine or a ten are classified as promotors. These customers are those who have a positive perception of a company. They are loyal to the brand and are likely repeat customers, or will be in the future. Their experience with the business was positive enough that they will likely recommend it to their family, friends, and colleagues.
Now that we understand NPS a little better, understand where the numbers come from, and why it’s important, we can start to talk about the actual calculations. In the previous section, we talked about the three different types of customer feedback we can receive on an NPS survey: Detractors, Passives/Neutrals, and Promotors.
NPS can range from a low of -100 to a high of 100. If all of your respondents’ answers were detractors, you would have a score of -100. If all of your respondents’ answers were promotors, you would have a perfect score of 100. Most companies will fall somewhere in between, but how is that calculated? From all of the customer surveys that you receive, you have a total of 100% – this includes the number of passive responses you receive.
First, you need to find what the total percentage of those responses are promoters, then you will need to find what the total percentage of those responses are detractors. Finally, you will subtract the number of detractors from the number of promotors to receive your final Net Promotor Score. For example, you receive 100 responses to your NPS survey. 70% of those responses were nines and tens. 10% of responses were passive, and 20% of the responses were detractors. You would first ignore the 10 passive responses. Then all you need to do is subtract 20 from 70 to receive a Net Promotor Score of 50. Simple enough!
A Few Final Words
Now you have learned all there is to know about Net Promotor Scores. We covered a little bit of the history of NPS and why it became such an important metric in customer experience management. Derived from the desire to understand the likelihood of customers purchasing and referral behavior.
We learned exactly what NPS is; simply an easy metric used by most businesses to better understand how their customers perceive their business. It’s used to understand customer loyalty, referrals, and a basic metric of business growth. We learned that it was important because even though it’s a simple enough concept and calculation, it’s an easy way to gain a quick understanding of where you stand in the eye of the customer.
We also learned how to calculate NPS in just a few simple steps. Now when you read a memo at work, come across another post on LinkedIn, or see that poster in your workplace, you will know all about NPS! Maybe you’ll even help your colleague understand what all the buzz is about.
Check out other ways to find success in the world of Digital Marketing.