What is Net Promoter Score?
In a nutshell, Net Promoter Score (NPS) is a synthetic indicator presenting how many clients are likely to recommend your product or service to others. It’s one of the key KPIs for every e-commerce operation and directly affects the process of acquiring loyal clients and predicting their behavior.
The main utility of Net Promoter Score is to create means of evaluation based on customer behavioral patterns connected with loyalty instead of establishing their relationship with a brand on a more shallow level. The metric has become a useful alternative to lengthy and time-consuming customer satisfaction surveys. There are hundreds of companies using NPS, including such industry leaders as Macy’s, Zappos, American Express or Johnson & Johnson.
NPS was introduced for the first time by Fred Reichheld from Bain & Company in “The One Number You Need to Grow”, a groundbreaking article published in Harvard Business Review. The author presented how the NPS value is connected to a company’s organic growth, meaning that businesses with a higher NPS are more likely to gain an advantage over the competition.
Collecting essential data for Net Promoter Score
Net Promoter Score is calculated based on a simple survey question:
How likely are you to recommend our company/product/service to a friend?
The answer should take the form of a number on a scale from 0 to 10, in which 0 means “not at all likely” and 10 means “extremely likely”.
After collecting a sample, calculating NPS starts with identifying three loyalty groups:
This group represents happy and loyal customers who will certainly recommend your company, product or service. Maintaining long-term relationships with this group will cost you less than any other group.
To maintain a good relationship with brand promoters, make sure they receive outstanding experience on different levels: customer service, sales offers and communication (you’ll find more about these topics in our articles on customer loyalty or lead nurturing).
This group includes satisfied customers, but less enthusiastic about the experience with your brand so far. This type of customer demands more attention. Depending on your marketing activities and their effectiveness, the passive but satisfied can upgrade to promoters and, consequently, increase the NPS.
But if you fail at delivering customer experience they expected, they can also become your detractors and be easy prey for your competitors.
This group includes unhappy and dissatisfied clients who are highly unlikely to recommend your products or services. Detractors eagerly discourage others from your company and spread negative information and opinions, which directly affects your revenue.
The most effective way to reduce the number of customers in this group is to conduct thorough research on the reasons for their negative experiences and start eliminating them. This is easier said than done, but a well-prepared survey will help you read between the lines and create an offer even detractors can’t resist.
How to calculate NPS
To calculate Net Promoter Score, you need to use a simple formula:
Your score can be expressed in a number between from -100 (the lowest) to +100 (the highest).
So how did it go? Are you wondering whether your situation is promising or depressing? Let’s move on and interpret your result.
Reading the score
Let’s see if you can start celebrating already! The table below by SPG Consulting group will help you interpret your score:
What is a good NPS? That’s a hard question to answer. Keep in mind that the NPS may have a different value depending on the business sector or location where the survey is taken — take a look at Net Promoter Score benchmarks for different industries.
The pros and cons of NPS
Just as with any other KPI, Net Promoter Score has its strengths and weaknesses.
- Intuitiveness. With one question, one answer and one result per customer, NPS is easy to calculate and understand.
- Client-centered. Addressing the survey to the client enables you to focus on their experiences both during and after the purchase takes place.
- Easy to compare. Thanks to its simplicity and clearly established values, you can easily adapt NPS to compare companies or products.
- Imprecision. Because there are only three grades in the NPS scale (promoters, passives, detractors), the margin of error can be even twice as high compared to an average customer satisfaction survey.
- Unknown range. A lack of data about the survey geographical range makes it harder or even impossible to prepare effective strategic plans.
- Biased results. The NPS scale assumes that every customer will express the same opinions using the same numbers. The fact is that some customers might never give a 10 to any store and will show their highest appreciation by rating 8, which affects the final score.
NPS as a KPI in your company
NPS gives you quick and updated insights into customer satisfaction levels. This lets you react promptly to any fluctuations, no matter if it’s improving the customer experience to reducing the number of detractors or maintaining the loyalty of promoters. Wondering how to use Net Promoter Score as a metric for your business? Here are a few ideas:
The NPS can become an indicator of certain actions and next steps taken deliver a high-standard customer experience. For example, if a client rates his/her experience at 0–5, it’s crucial to take action and monitor the further relationship.
With quick and clear feedback from particular clients, product designers and managers can better understand customer needs and expectations from products, services and brands.
Marketing and sales
All the insights used by customer service and product development teams are equally useful to marketing and sales. NPS helps them prioritize tasks and focus their resources on the strategies that will have the highest impact on customer experience and, consequently, the company itself.
Intuitive and easy to test, Net Promoter Score is a useful performance indicator, which helps build and maintain long-term relationships with clients. To make the most of it, you need to remember that NPS is not just about asking for a number. After “How many?”, ask: “Why?”. Thanks to regular improvements and continuous work, you can increase the number of brand ambassadors among customers and increase revenue.