The Net Promoter Score, or NPS®, enables organizations to get a clear vision of the health of their customers’ loyalty. Used widely across the globe, Net Promoter Score has become a key metric in customer engagement since its launch in 2003, attributed mostly to the model it provides for linking customer loyalty to financial KPI’s and profitable growth.
Why is NPS important?
Knowing your Net Promoter Score offers a variety of benefits that can prove extremely valuable for your business, including:
- the segmentation between Promoters, Passives and Detractors. This gives you the ability to build a strategy to approach these 3 groups, for example closing the loop with your Detractors, or leveraging positive word of mouth with your promoters
- a Net Promoter Score, or more likely a series of Net Promoter Scores, you can track for key areas of your business. For instance tracking your relationship NPS over time gives you an indication of whether your CX initiatives are having an impact on loyalty
How does Net Promoter Score work?
The Net Promoter Score works by segmenting your customers into Promoters, Passives and Detractors, using a very specific NPS formula. The key question to calculate the score is “How likely is it that you would recommend Company X to a friend or colleague?”. This question should be followed by at least another question: “Why”, as the respondent’s answer will guide the organization when it comes to driving customer-centric change.
How to calculate the Net Promoter Score?
So how is the Net Promoter Score calculated? NPS is based on the answer to one question: How likely are you to recommend Company/Product/Service X to a friend or colleague? Following the Net Promoter Score methodology, the scale used for this question is an 11-point scale, ranging from 0-10. Below is the formula to calculate your NPS rating.
Based on your customers’ response to this question, you’ll be able to classify them as Promoters (9 or 10), Passives (7 or 8) or Detractors (0-6). The Net Promoter Score is calculated by subtracting the percentage of Detractors from the percentage of Promoters.
Net Promoter Score calculation example:
Using the NPS equation, if you have 50% Promoters (i.e. half of your respondents gave you a score of 9 or 10), 20% Passives and 30% Detractors, your NPS score will be 50 – 30 = 20. The NPS scale goes from -100 (if you have no promoters) to +100 (if you have no detractors).
Is Net Promoter Score just one question?
Although the scale itself is based on a single question, the Net Promoter System is much more sophisticated. It implies that although the aim should always be to keep your survey questions short and to the point, you do need to include:
- The Why question following the NPS question. Typically this is formulated as “Could you please tell us why you gave us this score?”
Ideally the answer should be in open text format and allow the respondent to express their views in their own terms. Text analytics, through solutions like Forsta, can make sense of these verbatims and point you in the right direction when it comes to prioritizing actions based on customer feedback
- Additional questions you might need in order to dig deeper into the areas you focus on (for example, satisfaction scores for different stages of the customer journey)
If you do need more information, instead of adding more questions to the survey, you should consider other techniques, like root-cause analysis – basically asking key customers in-depth questions about their survey responses.
But a survey based on Net Promoter, like any other customer feedback, means nothing if you don’t take actions based on the insights you’re getting. The right mix of tactical, closed-loop actions (to rescue accounts about to churn for example), and strategic, long-term initiatives (for example improving your product offering), is key to the success of your program. And the NPS® score serves as a very intuitive, simple metric you can trend over time to evaluate the progress you’ve made.
What’s a good Net Promoter Score?
So what is considered a good Net Promoter Score? With a scale ranging from -100 to +100, you can guess it’s not easy to determine what a good Net Promoter Score, or even an average NPS Score, is. Some might say there is no such thing, although of course there are industry benchmarks you can buy (or commission) to give you a sense of the average Net Promoter Score for your market.
A good NPS Score is one that:
- Compares favorably with your competitors in your region and market
- Increases over time based on the initiatives you take to increase customer experience
- Helps to give direction when it comes to taking customer-centric actions to deliver on your specific business outcomes
What are the Net Promoter economics?
The economics of Net Promoter are similar to the principles that govern customer loyalty. Satisfied, or even better, delighted customers, will spend more and recommend your company to their friends. They also cost less to serve. On the other hand, dissatisfied customers cost a lot more to serve as they tend to generate more complaints. And of course they spend less and might deter new customers from joining by spreading negative word of mouth.
A key element of what the Net Promoter system adds here is the ability to correlate these principles to the Promoter, Passive and Detractor segmentation. For example, you can calculate the customer lifetime value of a promoter as opposed to a detractor, and therefore build a business case around whether the cost of turning a detractor into a promoter is worth the benefits.
Major organizations around the globe use NPS as their customer loyalty KPI. Its intuitive nature and correlation to financial metrics make it a very powerful metric, but it’s in the way it helps them make better business decisions that the true power of NPS come into play.
Can Net Promoter Score apply for every business?
NPS is no magic bullet! Like any other metric, it means nothing if you don’t take the right actions with your customers to achieve the right business outcomes. With the hype around NPS, it can be easy to discard the key aspects below:
- NPS might not be the right metric for you (just like any other metrics)
- NPS might not help to drive change within your organization
- NPS might not correlate to growth in your business (for example in companies where recommendations aren’t important)
What are the steps you need to calculate your Net Promoter Score?
Below is a list of 6 steps to get started with calculating your Net Promoter Score.
- Implement a customer satisfaction survey using the NPS scale and the “Why” question
- Calculate the percentage of customers who answered 9 or 10 on the questionnaire (your Promoters)
- Calculate the percentage of customers who answered 0-6 on the questionnaire (your Detractors)
- Subtract the percentage of Detractors from the percentage of Promoters
- The number you now have is your Net Promoter Score
- Don’t forget to take action on what your customers have shared with you, so you can work on increasing your score over time, and drive business results
This will help you get started, but remember that fostering a customer-centric culture and finding ways to improve NPS in your organization are no easy tasks.
How to increase your Net Promoter Score?
- Make sure you use your current NPS to establish a baseline so you can evaluate future trends
- Take tactical actions to close the loop with individual customers (or a selected group of them). Turning detractors or passives into promoters is a great way to increase your score (and more importantly your customers’ loyalty)
- Once you’ve gathered insights from a representative sample of your customer base, start taking more strategic actions, for example investing in product innovation or re-designing your billing system
- Keep correlating your actions to the impact they’ve had on your NPS, so you can justify further investments in customer experience
- Now correlate your Net Promoter Score to your business KPI’s (customer churn, revenue, cost of acquisition, etc.) so you can demonstrate the impact of customer experience on the bottom line
- Empower everyone in your organization to take action at their level, and understand how they can influence customer loyalty – customer experience should never be just another initiative, but a driver of positive culture change
How can Forsta help you with your NPS Program?
Forsta has extensive experience implementing Customer Experience programs, based on NPS as well as other metrics like Overall Satisfaction, Customer Effort Score, etc.
Forsta offers highly flexible Voice of the Customer software solutions, so you can decide how you prefer to work with us. We can use our expertise to build and implement your program with you, provide targeted help in specific areas, or you can simply use our technology to manage your program internally.
If you’d like more information about how to implement a Net Promoter program in your organization, or how to take it to the next level, contact us today!
*All trademarks are the property of their respective owners. Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix, Inc., Bain & Company, Inc., and Fred Reichheld.
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