Home » Net Promoter Score » NPS – A comprehensive guide to understanding Net Promoter Score
Last edited: May 25, 2022
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NPS or Net Promoter Score is a tool to measure customer satisfaction and loyalty to the company. Thus, the Net Promoter Score is a measure of customer loyalty that seeks to determine if a person is
1) ready to recommend your business
2) satisfied but not ready to recommend or
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Lets look at this first on the basis of popularity of NPS. NPS is the most widely used customer satisfaction indicator internationally. According to some studies, two thirds of Fortune 1000 companies use NPS as a measure of customer loyalty.
On its own, it can actually be said that NPS is by far the most commonly used metric in all business. Of course, the prevalence of use does not make it useful or tell us about its usefulness, but great popularity is always based on something.
Originally Net Promoter Score was brought up in Harvard Business Reviews article “One number you need to grow” year 2003. The title of this article sums up the most important point of view, from which the NPS was originally interpreted and why it has gained such popularity.
As the article says:
“The only path to profitable growth may lie in a company’s ability to get its loyal customers to become, in effect, its marketing department.”
Anyone can read the article and draw conclusions based on it. In summary, the article argues that NPS as a measure strongly correlates with growth rates in various sectors. If your company has a high Net Promoter Score, then it is likely to grow fast as well.
In this text, I do not evaluate the validity of these arguments and the conclusions drawn from them, or whether the Harvard Business Review is a reliable source or not. However, quite a lot of business decision-makers seem to swear by the name of that metric.
As already indicated above, NPS is investigated with only one question. Not the list of questions, but the most important question.
The question is answered on a scale of 0 to 10, where 0 means highly unlikely recommendation and 10 means highly likely recommendation. For NPS, it is essential that the question is not modified, since the layout of the question always affects the answer received. The question should be kept in a standardized format whenever possible so that internationally comparable data can be obtained from the study.
Respondents are divided into three categories based on their responses:
9-10 = Advocates
7-8 = Passive / Neutral
0-6 = Critics
In practice, this means that all answers between 0 and 6 are interpreted as negative answers. Answers 7-8 are neutral and are not taken into account in the NPS formula. Answers between 9 and 10 are positive.
At first glance, of course, it comes to mind that why would 6 be a negative value? However, it is above the mid-point of the scale. On what basis are answers 7-8 neutral, even though they are clearly at the top of the scale?
The scale is not something someone just came up with randomly. As a starting point they tried to keep the scale as simple as possible. As the original article states:
“We settled on a scale where ten means “extremely likely” to recommend, five means neutral, and zero means “not at all likely.” “
But when looking at customer testimonials and repurchases, three clear groups were found based on their behavior.
It turned out that the given NPS estimate can be used to predict the customer’s purchasing behavior. The referrals (9-10) were not only more likely to recommend the company to others, but were also more likely to buy again. Passively satisfied (7-8) and Reviewers (0-6) did not recommend the company to others nor did they buy again.
This does not mean that someone giving score 7 never buys again. It’s just less likely than someone who has a rating of 9 or 10 buys again, compared to him.
The only step that may seem a bit complicated in measuring NPS is calculating the results. NPS is calculated by subtracting the percentage of critics from the percentage of advocates. The number is between -100 (no advocates) and 100 (no critics).
Thus, the meter itself does not distinguish between a rating of 1 or 6. If a person is a critic, he or she is a critic.
You can go to Net Promoter Score – the Definitive Guide to use the NPS calculator and try different samples on your own, to get clear idea on how the NPS will be calculated.
Interpreting the Net Promoter Score is, in a way, the most subjective part of the whole process. Or maybe subjective is the wrong word, but I mean that while in some areas 60 NPS may be bad, in others it is excellent.
Of course, you can find different benchmarks online, for example at NPS Benchmark (https://npsbenchmarks.com/companies).
A few highlights from their data could be the average for the software industry 42, the average for airlines 37, the average for grocery stores 39 and the average for consumer brands 48.
Being satisfied with the average is not necessarily a sensible strategy if you want to get the most out of NPS. Its benefits are rarely fully linear. Likewise, there is also a certain point on the NPS scale, the so-called Tipping point, which will give you maximum benefit.
In practice, a 40-> 50 rise in NPS may not be realized in business with the same benefit as an increase in NPS 50-> 60.
The so-called target level is quite situational and the development of NPS in the current customer base is not always a relevant indicator for the company. For example, it may be more effective to just focus on customer acquisition on customers who will most likely have higher NPS than to save current ones.
Rather than focusing on whether NPS is good or bad, it is more important to think about why people give a certain rating.
Even if the NPS would results in -10 with a sample of thousand companies, 55% of which are critics and 45% of which are advocater, a closer examination may reveal that there is no point in developing NPS in the current customer base because the company’s services do not just meet their needs.
However, the end result can be very useful at the same time if you find the connecting factors as to why that 45% would recommend and 55% would not recommend the company to others. In this way, product and service development and customer focus can be directed to where they are most useful.
How does it work in practice? Some measure NPS out of sheer curiosity (or because others reportedly do so) without utilizing the feedback in any other way. Some do not even know what can be done with the collected data.
Personally, I think that if NPS is measured you should take full advantage of the data you get out of it. This means something more than presenting the figures on the management team without either taking action or developing ideas.
The first and most important thing is to make the measurement continuous so that the measurement does not remain a one time operation with a business impact close to zero. Measure NPS at regular intervals and monitor the impact of changes and improvements made to it. If possible, measure NPS segmented based on location, purchased service / product, or customer profile, for example.
In addition to the NPS, find out the causes and consequences of its formation by gathering open feedback. When you get positive comments and recommendations from your customers, you should use them in your marketing. Is there any better marketing materials out there than comments from satisfied customers?
The next pitfall, of course, is to ask for comments, but leave them dusted in the drawer. Although it requires a little extra effort, at least add comments to your company website. I guarantee that the site will generate more leads and sales as a result.
Even if NPS correlates with growth, it alone does not tell you what steps you should take to develop your business. Especially if the NPS is low, it is worthwhile to conduct a more extensive customer survey after the survey to find out more about the pain points and bottlenecks.
Here’s 7 ways you can try to improve your NPS.
NPS is a simple and functional metric that, according to some studies, correlate strongly with company growth. If your goal is to grow, NPS is an important tool for you. It helps you to determine if the orientation and focus are correct.
We recommend benchmarking your NPS to others in your industry! You should also consider trying out one of the 5 best NPS software.
NPS is the de facto standard for measuring customer and employee satisfaction. Start utilising NPS with Trustmary now!
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