What Is Net Promoter Score (NPS)?


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What Is Net Promoter Score (NPS)?

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 (aka The Ultimate 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 Confirmit Genius, 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.

  1. Implement a customer satisfaction survey using the NPS scale and the “Why” question
  2. Calculate the percentage of customers who answered 9 or 10 on the questionnaire (your Promoters)
  3. Calculate the percentage of customers who answered 0-6 on the questionnaire (your Detractors)
  4. Subtract the percentage of Detractors from the percentage of Promoters
  5. The number you now have is your Net Promoter Score
  6. 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.

Learn more about best practices in implementing a Voice of the Customer program that will deliver results in the short and long run.

How to Increase Your Net Promoter Score?

  1. Make sure you use your current NPS to establish a baseline so you can evaluate future trends
  2. 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)
  3. 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
  4. Keep correlating your actions to the impact they’ve had on your NPS, so you can justify further investments in customer experience
  5. 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
  6. 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 Confirmit Help You with Your NPS Program?

Confirmit has extensive experience implementing Customer Experience programs, based on NPS as well as other metrics like Overall Satisfaction, Customer Effort Score, etc.

Confirmit 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!

Interesting links:

Blog

Behind the Metrics

Infographic

Voice of the Customer Metrics Guide

Case study:

Siemens Corporation using NPS

How the Net Promoter Score Relates to Growth – Bain and Company

Making sense of the NPS debate – Maxie Schmidt, Forrester Research, Inc.

NPS® for B2B companies – Bain and Company

The economics of Net Promoter – Temkin Group

 

Quick Facts About Net Promoter Score

Is Net Promoter Score a Percentage?

The Net Promoter Score is not a percentage. It’s a score that ranges from -100 to +100. It is calculated based your percentage of Promoters and Detractors (see above for calculation), but the result, the NPS Score itself, is not a percentage.

When Was Net Promoter Score Introduced?

The creation of the Net Promoter Score was the result of research in the early 2000, which culminated with the publication of an article in the Harvard Business Review in 2003 (The One Number You Need to Grow), and a book by Fred Reichheld, called The Ultimate Question, published in 2006 and revised in 2011 (The Ultimate Question 2.0, Harvard Business Review Press).

What Can You Measure Using Net Promoter Score?

NPS helps you to measure the following:

  • The loyalty of your customer
  • The financial benefits of improving the customer experience, based on Net Promoter Economics
  • An actionable segmentation of your customer base (Promoters, Passives and Detractors)
  • Your position against your competition
  • And much more if you follow best practices around implementing successful VoC programs

What Can You Do with Your Net Promoter Score?

In and of itself, NPS (like any other metric) is no magic bullet when it comes to action. But organizations that measure and understand the Net Promoter Score can:

  • Decide the right strategy to address their key customer segments, for example: save detractors from switching to another vendor, turn passives into enthusiasts, or ensure promoters’ word of mouth is amplified
  • Track the success of their CX initiatives by paying close attention to the evolution of their NPS
  • Embed NPS at all levels of the organization, for example recognizing call center agents who generate promoters, or identify best practices in high-scoring stores which can be replicated to locations that might be struggling
  • And much more.

How to Read an Net Promoter Score Score?

Your NPS Score is a number between -100 and +100 and indicates the overall loyalty of your customer base. Most organizations calculate their NPS Score at key stages of the customer journey:

  • An overall Relationship NPS
  • Transactional NPS Scores at key touchpoints, for example post-purchase or after a support call

The score in itself, like all customer loyalty metrics, has limited power. If you calculate your relationship NPS to be 35, the next question will be: “So what?”.

Rather than reading the NPS Score itself, focus on:

  • The verbatims and qualifying questions that will give you an indication on what you should improve to drive a better customer experience
  • The trends in the NPS Score(s) you collect – to evaluate the impact that the actions you take (or external factors in some cases, like a recession) has on customer loyalty

Other best practices can be put in place for your Net Promoter program to ensure you drive the right actions, and culture, that will deliver tangible financial benefits for your organization.

How Can Net Promoter Score Work for Your Business?

An essential ingredient to the success of a Voice of the Customer program based on NPS, or other loyalty metric, is executive support. No matter how engaged your employees are to improve the customer experience, or how motivated you are as a CX professional, your program can only truly drive positive business results with the full backing and support of your top executives, starting with your CEO.

If that’s the case, you’re in a great spot! But you still need the right technology and services:

  • to ensure you’re asking the right questions to the right customers at the right time, through the right channel
  • to get the insights to the people who can take the right actions
  • to measure the impact of these actions in terms of business outcomes

What Are the Net Promoter Score Questions?

Utilized properly, there should be at least 2 questions in a Net Promoter customer loyalty survey:

  • "How likely is it that you would recommend Company X to a friend or colleague?”
    The scale offered to the respondent should range from 0-10 and state all 11 scores possible.
  • A question asking the respondent to justify the score they gave, for example “Could you please tell us why you gave us this score?”
    The response to this question should preferably be in open-text format to let the respondent share his feedback in his own words.

Additional questions may be added to the survey if and when they can help the organization gather key insights they need, but it is critical for organizations asking for customer feedback to keep their questionnaires short and to the point. Respecting customers’ time and collecting only critical data will go a long way towards improving engagement, and response rates. But in the end, it’s all about the actions you take to drive a better customer experience – if your customers see you care about their feedback, and act on it, they’re much more likely to keep sharing insights in future.

*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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