A Net Promoter Score, or NPS Score, is a numerical rating system that is used to measure the willingness of customers to recommend a company’s products or services to others. The NPS metric utilizes an index ranging from -100 to 100, with the number equating to the customer’s willingness to recommend.
Why is a High NPS Score Important?
A company uses its Net Promoter Score to gauge its customers’ overall satisfaction with its products or services. This is an important piece of data because it provides the company with a reliable indicator as to the level of loyalty its customers have to its brand.
How is a Company’s Net Promoter Score Calculated?
Calculating a company’s Net Promoter Score is simple and straightforward because all of the information that’s needed to be obtained can be acquired quickly and easily. In fact, customers are asked to answer just one simple question – “On a scale of 0 to 10, how likely are you to recommend this company’s product or service to a friend, family member, or colleague?”
Depending on the numerical answer provided, the customer will then be classified in one of three categories, which include:
- Detractors (0 to 6) – Detractors are customers who either did not like the company’s products or services or had a bad enough experience with the company that they would most likely not recommend its products or services to others. In serious cases, the customer might even damage the company’s reputation by spreading negative word of mouth both online and off.
- Passives (7 or 8) – Passives are customers who had a positive enough experience with a company’s products or services, but they didn’t love it so much that they wouldn’t try a competitor’s offerings if provided the opportunity. These customers are middle of the road in terms of their feelings. They don’t dislike the company enough to spread negative word of mouth but they don’t love it enough to promote it.
- Promoters (9 or 10) – Promoters are repeat customers who are so enthusiastic about the company and its products that they regularly promote the brand online and off in an effort to introduce it to as many other potential buyers as possible.
In order to calculate the Net Promoter Score, the percentage of detractors is subtracted from the percentage of promoters. The final number will be between -100 and 100 and this will be the company’s Net Promoter Score.
Does the NPS Really Work?
Yes! And, the results can be found throughout just about every industry. For instance, in Lara Brooks’ book, “Answering the Ultimate Question: How Net Promoter Can Transform Your Business”, the author’s research revealed that of those B2B companies that adopted the Net Promoter discipline, the most “successful companies saw an average of 23% increased revenue growth.”
Bain & Company, performed a customer survey in 2012 and their research determined that customers who rate as promoters are worth 2.6 times those that rate as detractors, with online retail being among the top beneficiaries of promoters. The firm also determined that for most industries, the Net Promoter Score accounts for anywhere between 20% and 60% of a company’s organic growth rate.
Telco iiNet is a real-world example of how a higher NPS Score can positively impact a business. In a 2013 interview, CEO Michael Malone stated that just a 1-point increase in his company’s NPS Score equates to a $1.6 million increase in net profit after tax.
Three Steps to Improving Your NPS
It’s important to understand that simply calculating your company’s Net Promoter Score at routine intervals isn’t enough to make a measurable difference in your company’s image or profit potential. To do this, you need to make certain changes within your business model. This can be accomplished by putting the following three steps into action.
#1: Make a Commitment to Improving the Customer Experience: A focus on improving the customer experience needs to be a company-wide effort. If only one department makes the commitment, then it will be almost impossible to maintain it to the point that it can make a difference. Improving your NPS Score begins with strong senior leadership and a complete dedication to providing every customer with a positive experience.
#2: The Company’s NPS Landscape Needs to be Closed-Loop: An NPS System needs to be built in a closed-loop fashion. This means that any feedback collected from its customers is used to make the changes necessary to generate more promoters.
#3: Analyze the Data to Determine What’s Causing the Detractor Experience: Calculating your NPS Score is relatively easy, but once you have the data compiled, you need to analyze it to determine why customers are rating as detractors. What are the instigating factors causing them to have such unpleasant experiences with your products or services? It is therefore essential for your company’s senior leadership to isolate the issues behind the data and to implement the changes necessary to help improve its relationships with its customers.
In closing, it’s important to recognize that your Net Promoter Score plays a significant role in measuring and strengthening overall customer satisfaction. Simply measuring your customer’s satisfaction is not enough. By implementing an NPS system into your customer service program, you’ll be able to identify the key factors that foster loyal, satisfied, and happy customers so you can replicate them business-wide for greater growth and lasting success.
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