Net Promoter Score and Its Importance to Your Business
Customer satisfaction is a measurement that determines how well your company’s products or services meet or surpass your customer expectations. There are many tools available for measuring customer satisfaction and experience. One of the customer experience metrics most widely used by both large and startup companies is the Net Promoter Score (NPS).
What is Net Promoter Score?
NPS is a metric used to measure customer loyalty and how likely customers are to recommend your products or services. The concept was developed in 2003 by Fred Reichheld, a partner at Bain & Company. It is one of the most straightforward methods of measuring customer satisfaction wherein customers are asked one simple question:
How likely are you to recommend a product or service to others?
Customers answer using a corresponding survey scale ranging from 0 to 10, where 0 means “least likely” and 10 means “most likely". According to Reichheld, the responses are highly indicative of a company’s overall success.
NPS is different from other customer satisfaction metrics because it measures a customer’s overall sentiment about your brand instead of a customer’s perception of a particular experience or purchase, which is the case in Customer Satisfaction Score and Customer Effort Score.
How is NPS calculated?
Respondents are categorized according to their scores. Promoters are those who give a score of 9 or 10, Passives are those who choose 7 or 8, and Detractors are those who respond with scores ranging from 0 to 6.
Promoters are the loyal and satisfied group and are likely to be repeat customers, while Passives tend to be satisfied customers who might leave for another brand. On the other hand, Detractors are the unsatisfied customers and most likely to negatively speak about a product.
The NPS is then computed as the percentage of Promoters minus the percentage of Detractors. Scores can range from –100 to 100.
A company sent out a survey to 100 customers and received the following response:
40 customers responded with a 9 or 10 (Promoters)
40 customers responded with a 7 or 8 (Passives)
20 customers responded with scores ranging from 0 to 6 (Detractors)
To get the NPS, subtract the percentage of Detractors from the percentage of Promoters.
NPS = % of Promoters – % of Detractors = 40% – 20% = 20%
This score means that the company has a positive NPS because there are more Promoters than Detractors. If there are more Detractors than Promoters, then it would result in a negative NPS.
According to Bain & Company, in the absolute NPS method, where an NPS is compared to a loose standard across all industries, a score above 0 is good and above 50 is excellent. In the relative NPS method, a good score will vary because an NPS is compared to others within an industry.
Why is NPS important?
Here are four reasons why NPS is important for the growth and success of your business.
It measures customer satisfaction and loyalty.
NPS can help you see directly how satisfied your customers are with your products or services. It effectively measures the overall satisfaction of your customers and how many customers are loyal to your brand. If you are not seeing the satisfaction that you want, then you can take the necessary changes to improve it.
It provides an opportunity to get feedback and make changes and improvements.
The main survey question is usually followed by one or two supplementary open-ended questions to get additional feedback. Respondents can make suggestions that provide directions for changes and improvements. They can also report issues or concerns that should be addressed. Customer feedback is important because you can adapt strategies based on the customer responses.
It helps improve customer retention.
Retaining your customers is much easier and cheaper than acquiring new ones. NPS can be used as a precaution against customer attrition. The more Promoters you have, the lower the customer acquisition costs for your company. However, Passives should not be ignored because this is the group that is more likely to leave you for another brand. It is recommended to find out why this group is less satisfied than the Promoters.
It is simple and inexpensive.
An NPS survey is a straightforward tool that measures customer satisfaction and loyalty by just using one score. It can be conducted online, via email, or over the phone and usually takes less than 5 minutes to complete. Aside from being a simple tool, NPS is also inexpensive to implement while effectively providing valuable data.
Measuring customer satisfaction is important for both big businesses and fast-growth companies. It helps provide important information for changing business strategies. NPS, together with customer feedback analysis, is a very valuable customer satisfaction metric that you should regularly utilize to maximize its benefits. If you can measure your customers’ loyalty and perception of your brand, it will be easier for you to improve the services and experiences that you provide.