What is NPS, or the Net Promoter Score?
When it comes to running a successful brand or business, nothing is more important than the satisfaction of your customers or clients. However, accurately gauging this satisfaction is easier said than done. Sales and subjective customer feedback alone are notoriously inaccurate when it comes to predicting and understanding how happy people actually are.
That’s why Frederick Reichheld of Bain & Co. devised the Net Promoter Score, or NPS, as a revolutionary yet simple new way to evaluate customer satisfaction. He proposed that by asking customers to rank their experience via the question “On a scale of 1–10 how likely would you recommend us to a friend or colleague,” business owners could succinctly gauge customer satisfaction and loyalty via an easy-to-understand formula.
But can it really be that straight-forward? Honestly, in the business world, it is debatable. Though many Fortune 500 companies from American Express to Zipcar rely on NPS, others believe it’s impossible to derive truly useful data from these numbers alone.
Before we dive too deep into the merits and concerns about the NPS system, let’s learn a little bit about its history and exactly how the Net Promoter Score works.
The Origins of NPS
Back in 2003, Frederick Reichheld first promoted the idea of a Net Promoter Score in a Harvard Business Review article called The One Number You Need to Grow. In his vast business experience, his belief was that the most important indicator of business success is through customer loyalty.
But, especially back in 2003, how can you really narrow down how loyal customers are to your business or brand? Comments can be subjective and difficult to evaluate. It’s also difficult to actually get people to sit down and answer in-depth questionnaires. How can you really know if the feedback received is an accurate representation of your entire clientele?
That’s where the idea for an NPS emerged. The Net Promoter Score is a way to track one of the most important aspects of brand growth—loyalty—into a succinct metric. Now, rather than attempting to decipher comments, feedback, body language, tea leaves, or however you were previously judging customer satisfaction, you can boil it down to a single number.
How the NPS Formula Works
“On a scale of 1–10, how likely would you recommend us to a friend or colleague?”
After answering that essential question, all customers are sorted into three distinct groups:
Anyone who gives a score of 0–6 is labeled a Detractor. As you can probably guess, this is the least ideal category for a customer to fall under. Those considered Detractors are not only unlikely to be repeat customers, but they are also likely to tell others about their unpleasant experience.
Customers that give a score of 9 or 10 are Promoters. Not only are they probable loyal repeat patrons, but they’re also the ones to shout their positive experiences from the rooftops. With around 80% of all referrals generated by Promoters, turning customers into Promoters is the ultimate goal.
Giving a score of 7 or 8 makes that customer Passive. Though they didn’t have a terrible experience, it’s unlikely they’ll be referring your business to anyone else. They can also be easily lured to another brand. They may not be out there spreading a bad word about your company, but don’t overlook Passives. It may not take much to turn them into valuable Promoters, or have them jump ship altogether for a competitor.
Calculating your Net Promoter Score is simple. Once you have your data set, subtract the percentage of Detractors from the percentage of Promoters.
Percentage of Promoters - Percentage of Detractors = Your Net Promoter Score
As the percentage of Passives aren’t calculated in the formula but do make up part of the entire percentage of responders, it drags down the score. They may not be hurting your business, but they’re certainly not helping it.
The Net Promoter Score scale goes from –100 (all Detractors) to +100 (all Promoters). Any NPS higher than zero is considered decent, and a score higher than +50 is excellent.
It’s also recommended to also ask for some feedback after answering the primary question. That way, you’ll have some guidance about what they liked—or what they didn’t. Though it’s technically appropriate to ask for even more feedback, do avoid too many questions. That will only increase the chances of customers seeing too much of a time investment skipping it altogether.
So now that you have your official NPS score, the ultimate goal isn’t only to turn those Passives or Detractors into active Promoters, but also to keep those Promoters engaged as proud, loyal customers.
How to Properly Use Your NPS
Great! So you’ve tabulated your Net Promoter Score—now what?
The first thing to note is that determining your Net Promoter Score isn’t a one-time deal. To actually get something out of the formula, you’ll not only have to actively monitor your score, but also actively work to maintain and grow your numbers.
Part of this active monitoring involves “closing the loop.” This means following-up with ALL respondents to:
- Get feedback about their brand experience, no matter what it was
- Try to turn Detractors or Passives into converts, and keep those Promoters promoting
Prior to asking customers any survey questions, collect their email and contact information. This ensures an easy follow-up and the ability to re-connect. Once the survey is completed, thank them for participating—perhaps with a promotion attached—and then “close the loop” by responding to their specific feedback.
Further strategy also comes into play as you’ll have to consider how to convert or keep your customers. These strategies can vary greatly, but might include:
- Directly calling Detractors to ask why they were unhappy and how your brand could improve in the future.
- Encouraging Promoters to become more connected with the brand via social media promotions or loyalty programs.
- Pushing Passives towards becoming a Promoter with a special sale or coupon
Collect as much feedback as possible and consider it gold. Use it wisely to hone how you reach out and interact with your customers in the future. After all, without them your brand wouldn’t exist.
The Downside of NPS
Though the Net Promoter Score system gets plenty of love, there are people who disagree with it as well, and their reasons are well worth mentioning. The most common gripe is that it over simplifies customer satisfaction, loyalty, and other factors that attribute to business growth. The number provides a false sense of really understanding what the customer feels.
In addition, aside from comments which vary in legitimate value, there is little to guide business owners about the customer’s actual qualms. For example, does a “4” mean they were unhappy about the product itself, or were they rubbed the wrong way by a salesperson? If the problem was with the product—why? Too expensive? Too flimsy? Too complicated?
Essentially, those unenthused with the NPS system may consider it an okay place to start, but far from as reliable as many emphatic users portray it to be.
The Perks of NPS
Frankly, many love NPS because of its simplicity. Though it may not be the end-all be-all when it comes to tracking business growth and customer satisfaction, it’s considered a highly reliable indicator by companies worldwide.
Calculating an actual metric also takes out the subjective nature often attributed to customer experience. With a number, it’s possible to actually monitor loyalty in an objective way and observe those fluctuations analytically.
It’s also easier to convince customers to give feedback when they only have to answer one question. Even if there’s a follow-up question or two afterwards, it still takes most under a minute to complete. Compare that with the long-form surveys out there and you can see why companies get more responses via NPS. And more responses equal more accurate data from more clientele.
Wrapping It All Up
For most brands, using a Net Promoter Score is one of the simplest and most accurate ways to track and understand customer loyalty. Like any method, it’s not perfect. However, if used properly, few other metrics can so thoroughly and objectively track something as subjective as customer experience.
And when comes to running a successful brand and business—what’s more important than that?