Net Promoter Score (NPS)
How the Net Promoter Score Helps You Benchmark Customer Loyalty
NPS is a customer loyalty metric created by Fred Reichheld, and used in customer satisfaction research. NPS is the most popular and proven metric for measuring and acting on customer loyalty data. The NPS survey asks basically one question: How likely is it that you would recommend (Our Company) to a friend or colleague? Using NPS helps increase retention, realize greater cost efficiencies, achieve higher annual spend (LTV), and earn more customer loyalty.
At a basic level, you can implement the Net Promoter strategy in four steps to create a score and game plan:
- Create and send a Net Promoter style questionnaire/survey to your customers.
- Categorize and analyze customers based on their answers to the question.
- Calculate your Net Promoter score.
- Implement a Net Promoter strategy.
1. Ask the Satisfaction question.
Finding out what your Net Promoter score begins by asking one simple question: How likely is it that you would recommend us to a friend or colleague? By asking this question, and by categorizing customers based on their answers, you can get a clear measure of your company’s performance through your customers lens.
2. Categorize customers based on their responses.
Customers respond to the one question on a scale from 0 to 10; their responses indicate which category they fall into. The NPS responses are divided as follows: Customers who answer 0-6 are “Detractors”, 7-8 are “Passives,” and 9-10 are “Promoters.” The goal is to maximize the number of customers who are Promoters in your company.
3. Calculate your companies Net Promoter Score.
To calculate your company’s NPS:
- Find the percentage of customers who are Promoters and Detractors.
- Subtract the percentage of Detractors from the percentage of Promoters.
For instance, suppose 100 customers respond to your survey as follows:
NPS = % of Promoters – % of Detractors
NPS = 35% – 65%
NPS = -30%
This is not an end all be all metric and should be used as a yardstick to understand customer satisfaction and loyalty. This is only a litmus test and should not be the sole metric used in your assessment of your customers opinions about your business.
4. Implement the Net Promoter model.
Simply measuring your NPS does not lead to success.
- Does it help your employees clarify and simplify the job of creating happy customers?
- Does it help you identify and engage your best customers?
ROI metrics to focus on
- Higher retention rate: Detractors generally defect at higher rates than Promoters, which means that they have shorter and less profitable relationships with your company. Save those Detractors—turn them into Promoters.
- Higher margins: Promoters are usually less price-sensitive than other customers because they believe they’re getting good value overall from your company. The opposite is true for Detractors, who are more price-sensitive.
- Higher annual spend: Promoters buy more, more often, than Detractors do. They tend to consolidate more category purchases with their favourite supplier. Promoters’ interest in new product offerings and brand extensions also exceeds that of Detractors or Passives.
- Greater cost efficiencies: Detractors complain more frequently and consume more service resources. In contrast, Promoters reduce customer acquisition costs by staying longer and helping to generate referrals.
- Greater word of mouth: What proportion of new customers selected your firm because of reputation or referral? The lifetime value (LVR) of those new customers, including any savings in sales or marketing expense, comes from Promoters. Detractors are responsible for 80 to 90% of negative word of mouth, so you can attribute the cost of this drag on growth to them.