What is the Net Promoter Score?
Net Promoter Score is an index that measures customer happiness. A lot of companies use it also as an indicator of growth. The primary purpose of the NPS is to evaluate customer loyalty to a brand or company and to gather actionable customer feedback.
The NPS is calculated based on responses to a single question:
On a scale of 0-10, How likely is it that you would recommend our company/product/service to a friend or colleague?
People who respond 9 t0 10 are called Promoters
People who respond 7 to 8 are called Passives
People who respond 0 to 6 are called Detractors
The NPS is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. Passives count towards the total number of responders.
NPS= % of Promoters – % of Detractors
Having more Promoters than Detractors is an indicator of growth.
Having more Detractors than Promoters is an indicator of decline.
Having more Passives than anything else means you need to work on creating a positive customer experience. Their feedback can be very useful. This is a group that gets ignored frequently.
The NPS can range anywhere from -100 to 100. Any score above 0 is considered positive. Below 0, you have more unhappy clients that happy ones and this is never a good thing. Scores above 50 are really good, and above 65 are amazing. Leaders like Apple, Netflix or Zappos have an NPS between 60 to 70.
The critical component of NPS is the open-ended follow-up question when you can ask your customers why they have chosen that score. This question can also be personalized and it gives respondents the opportunity to express in their own words their opinion. And this can be incredibly useful to you. You get to learn not only what they like and dislike about your products, your company, or your service, but also the specific terminology your customers use when talking about you and your products. You can use this terminology in your sales copy, in your advertising, and in your direct communication with your customers.
According to research, anywhere between 20% to 50% of a company’s revenue is driven by referrals and/or word of mouth. Your promoters, those that have score 9 or 10, are the ones that will do this job.
They are loyal to your brand. They are willing to defend your brand and to recommend your products and services to friends, colleagues.
Promoters are usually less price-sensitive, buy more and more often than other customers.They interest in new products you are offering also exceeds that of Detractors and Passives.
A passive is indifferent to your product or service. They don’t have enough motivation to talk negatively nor positively about you.
They are likely to churn within six months. On average 20-30% of passives churn within 180 days depending on your business model. They are not loyal to your brand so as soon as they get a better option, they will leave.
They are price sensitive. Since they are mostly indifferent about your product features or benefits, this leaves only the price to make a decision.
This is a group that sometimes is overlooked by companies because they seem content, but this does not mean that they are happy customers and so there is room for improvement.
Detractors, anyone that scores you a 6 or below, are likely to churn very soon. Statistically, up to 40-50% of detractors will leave you within 90 days or sooner than that.
A company that wants to reduce churn rates needs to address the concerns this group might have.
Detractors are more price-sensitive, usually have a shorter and less profitable relationship with your company. They are also responsible for negative word of mouth. Detractors are nearly twice as likely to share a negative experience with others than a promoter is to share a positive experience.
Main reasons to measure NPS
- Helps you maintain a customer connection as you grow
- Churn prevention by being more proactive with your customers
- Guide product development. Qualitative feedback capture from NPS surveys can be used to identify customer pain points, validate new feature requests and refine the product roadmap.
- Quantify customer happiness
- Bring customer-centricity to your business. Every department in your business is focused on delivering customer satisfaction.
- Helps you identify and leverage your advocates (promoters)
How the Net Promoter Score relates to growth?
According to the research behind the Net Promoter Score and discipline, a higher NPS (higher number of Promoters) results in:
- Higher retention rates
- Increased upsell/cross sell
- Lower cost to serve
- Lower marketing costs due to word of mouth
The NPS is great as a first step to evaluate customer loyalty. However, it will be useless if you don’t have a plan in place to act on the results.
Be strategic when leveraging your promoters. Ways to leverage your promoters:
- Ask them to leave a review
- Offer a referral program to give them more incentive to promote you
- Ask them to give you a testimonial. Use this in your sales copy, in social media platforms and other marketing materials.
- Ask your promoters to tweet or share on social platforms a promotional message, a customer testimonial, and other content you have published.
- Use your promoters to target similar profiles when doing Facebook advertising. You can target a specific audience using your existing customers and creating a lookalike group from their profiles. You can also use a promoter’s testimonial in your Facebook ad.
Take a proactive approach with your detractors, read their feedback, try to understand the issue. Follow up on low NPS score immediately to prevent churn and stop their negative feelings towards your product or your brand.
Don’t ignore the passives. They are highly susceptible to competition in the marketplace. This group represents a big opportunity to grow lifetime value.
NPS Best Practices
For subscription and SaaS business models, instead of sending a mass email campaign to all your customers once a year, use an NPS platform to send surveys to a few customers each day. This way responding to customers is more manageable, you can reach out to detractors to address any issue in a timely way, and it is easier to correlate changes in NPS with business milestones.
For transactional business models, send out an NPS survey shortly after a purchase or event. Give them enough time to use the product.
Improve your customer experience reducing friction when surveying your customers.
- Think about what’s the best way to ask customers for contextual feedback: via email or with an in-app program. The lowest friction way to conduct NPS surveys is asking in-product. However, if your customers are rarely online using your product/service, send them an email.
- Survey them at the right time. Give them enough time to use and understand your product, and don’t survey them too often.
- In order to reduce response rates, ask only the NPS question and do a follow up later asking for more details.
NPS can be used to optimize every function that impacts the customer: product development, marketing, customer service/support (Zappos use it every day), sales.
For product development, you can track feedback related to your core product, like requests for new features and suggestions for improvement. You can also obtain feedback about IT issues (uptime, speed).
For marketing, NPS can be used to identify and leverage promoters.
For customer service/support, NPS can act as a signal for support outreach to improve retention.
For sales, which accounts are primed for upselling? Who might provide a referral?
Tagg open-ended feedback so you can segment and categorize them. This can help you learn the top reasons your customers love or hate your products or your brand.
Send follow-ups to build loyalty. Three ways to do it, or use a combination of them:
- High touch. Reach out to your customers each time they respond. Ideal for B2B.
- Medium touch. Schedule a weekly email campaign to each group. Thank your promoters, route responses from detractors (try to find out why they are not happy), consider an automated message to passives that did not leave feedback.
- Low touch. Consider writing a blog post or a newsletter at the end of the month with a summary of the feedback you have received and your plans to address the issues.
Leverage NPS to create a customer-centric culture, one that involves all of your company’s departments.
Measure changes in score over time. The best practice is to send any individual customer four NPS survey per year. Customers’ sentiments towards your brand or your products can change over time and NPS can help you measure these changes.