What is a Net Promoter Score (NPS) and Why Does It Matter?

What is a Net Promoter Score (NPS) and Why Does It Matter?  

As a business owner, you are constantly striving to gauge customer satisfaction and loyalty. But asking customers to spend their valuable time answering questions to a survey that must then be translated into metrics may seem almost irrational… and complicated. 

Born from this exact scenario is Net Promoter Score, or NPS. 

What is a Net Promoter Score (NPS)? 

First invented in 2003, Net Promoter Score (NPS) is a metric designed to provide valuable insights into crucial aspects of your business by asking one simple question: 

“How likely is it that you would recommend [company name] to a friend or colleague?” 

Respondents rate their likelihood on a scale of 0 to 10, with 0 being highly unlikely and 10 being highly likely. Based on their responses, customers are categorized into three groups to help you determine their overall score. 

What are the three categories of Net Promoter Scores (NPS)? 

Based on their NPS survey results, respondents are categorized as the following: 

Promoters (score 9-10) 

These are your enthusiastic customers and loyal customers who are likely to recommend your business to others. They contribute positively to your business through word-of-mouth referrals and repeat purchases. 

Passives (score 7-8) 

Passives are satisfied customers, but they are not as enthusiastic as promoters. They are less likely to actively promote your business and may easily switch to competitors if offered a better deal. 

Detractors (score 0-6) 

Detractors are unhappy customers who may spread negative feedback about your business. They are unlikely to recommend your business and may even discourage others from using your products or services. 

Every response matters, as they each tell a story that helps you know whether your business, service, or product is performing the way customers expect. 

How NPS Is Calculated 

To calculate Net Promoter Score, you subtract the percentage of Detractors (respondents with 6 or lower) from the percentage of Promoters (respondents with a 9 or 10). NPS survey results are then reported with a number between -100 to +100, where the higher the score, the better. 

What's a Good NPS Score? 

While getting a perfect 100 sounds ideal, it is nearly impossible to achieve. 

When you conduct your first NPS survey and receive your score, it is comparable to running your first race; you now have your own benchmark to try and beat for a new personal record each time afterwards. As you move closer to 100, this will show you are making forward progress. 

Comparing your company’s rating to the industry average will also give you a good indication of where you are relative to your competitors. Be sure to consider the geographical area from where you are receiving ratings, as some cultures rate more conservatively based on their interpretation of what a “10” may indicate. 

In general, Bain & Company (creators of NPS) suggest a good Net Promoter Score is a positive number where: 

• Above 0 is good; 
• Above 20 is favorable; 
• Above 50 is excellent; and 
• Above 80 is world class. 

Why Does NPS Matter? 

Net Promoter Score (NPS) is the gold standard of customer experience metrics because of its simplicity to quickly receive feedback about customer loyalty and overall sentiment. It can also help you monitor improvements in a product, service, or organization. 

Customer Satisfaction Measurement 

An NPS calculation provides a straightforward way to measure overall customer satisfaction and loyalty. By understanding the distribution of promoters, passives, and detractors, you can identify areas for improvement and track changes in customer sentiment over time. 

Predictive of Business Growth 

Research has shown a strong correlation between high NPS scores and business growth. Companies with a higher proportion of promoters tend to experience faster revenue growth and higher profitability compared to those with lower NPS scores. 

Customer Feedback and Improvement 

NPS surveys offer an opportunity for customers to provide feedback on their experiences with your business. By analyzing comments and suggestions from both promoters and detractors, you can gain valuable insights into what drives customer satisfaction and identify areas for enhancement. 

Benchmarking and Comparison 

Using an NPS scale from competitors or industry standards allows you to view average NPS ratings and benchmark your performance. By monitoring your NPS data relative to others, you can identify competitive strengths and weaknesses and adapt your strategies accordingly. 

How to Leverage NPS Effectively 

There are several strategies for NPS to be used to your advantage. 

Regularly Conduct NPS Surveys 

Implement a systematic approach to gather NPS feedback from your customers at regular intervals. 

Create an Action Plan 

Have a plan in place for how you respond to NPS feedback. Use the suggestions you receive to drive actionable improvements in your products, services, and customer experiences. Address concerns raised by detractors and capitalize on strengths highlighted by promoters. 

Empower Employees 

Share NPS results with your employees and involve them in improving customer satisfaction. Encourage frontline staff to actively solicit feedback and address customer concerns in real-time. 

Monitor Trends 

Track changes in your NPS over time to identify patterns and trends. Look for correlations between NPS scores and business metrics such as revenue, customer retention, and market share. 

Which Technology Tool Should I Use for NPS Tracking? 

While there are many options available, SurveyMonkey, Qualtrics, and Delighted are the most popular tools that facilitate NPS tracking. These platforms automate the surveying process, from sending out NPS questions to analyzing the responses. They also integrate with multiple CRM systems allowing businesses to link NPS scores directly to customer records for richer insights.  

Ultimately, the best tool for you to use is the one that best fits your needs. 

Final Thoughts on NPS 

Overall, Net Promoter Score (NPS) is a powerful tool for measuring customer loyalty, predicting business growth, and driving continuous improvement. By understanding the significance of NPS and taking proactive steps to leverage it effectively, you can enhance customer satisfaction, strengthen brand loyalty, and achieve long-term success for your business. 

Sources:
Qualtrics
ClearlyRated