What is a Net Promoter Score?
A Net Promoter Score (NPS) is a measurement system used to gauge customer loyalty, but the same methodology can be used to evaluate employee satisfaction with their employer. It was a concept that was introduced by Fred Reichheld in 2003 and has since been used by thousands of companies across the globe. A company’s net promoter score benchmark is determined by asking customers one question:
“How likely are you to recommend our company/product/service to your friends and colleagues?”
Calculating Your Net Promoter Score
In order to determine your company’s NPS, customers are asked to rate the company on a scale of 0 to 10 (0 for the lowest satisfaction and 10 for the highest satisfaction). The fundamental principle is that customers can be divided into three categories: Promoters, Passives, and Detractors.
Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
To calculate your company’s NPS, take the percentage of customers who are Promoters and subtract the percentage who are Detractors. For example, if ABC Company has 60% Promoters and 10% Detractors their NPS is +50.
Understanding Your Net Promoter Score
It is important to compare your NPS to other companies in your industry, sector, and region as well as against your direct and indirect competitors. Benchmark information can be purchased from companies such as Satmetrix who publish annual NPS benchmark studies that include data from B2C and B2B companies across the globe.
Research indicates that the average NPS is between 10-15% (anything above 15% is considered above average) and the highest performing organizations are situated between 50-80%. A few select companies have achieved a NPS of at least 50% which Reichheld defines as “world class” and include businesses such as Apple, Costco, Nordstrom, USAA, Amazon, and Southwest Airlines (reported in the 2013 Satmetrix Net Promoter Benchmark Study).
Elicit Specific Customer Feedback
It’s great to know how your company scores, but you can’t really do anything to facilitate change if you don’t know why a customer is or is not likely to recommend your product or service. When conducting a client satisfaction survey, consider asking some open ended questions such as:
1) Why did you give us that score?
2) What experiences did you have with us to shape that choice?
3) What can we do to earn a rating of 10?
Encourage elaboration by using questions that solicit feedback from your customers so you can better understand the reasons why they rated your business the way they did. After all, you can’t take action to improve if you don’t know WHY a customer is or is not likely to recommend your business.
Improve Your Score and Increase Retention Rate
Businesses interested in improving NPS and increasing customer retention rates must closely examine their approach to customer satisfaction. Research indicates that an improvement in customer satisfaction will result in an overall improvement in NPS. In your customer service initiatives, determine what experience you want to deliver to your customer and what emotions you want to evoke to encourage retention. According to Harvard Business Review, increasing customer retention rates by 5% increases profits by 25-95%.
Bruce Temkin, Customer Experience Professionals Association Chairperson, said “Companies must ask the right questions of the right clients at the right time so they can understand why customers are Promoters, Detractors, or Passives. Understanding those reasons is the first step toward a higher NPS –and more loyal customers.” You can only begin to improve your business and NPS when you understand how your customers perceive it.
As you go through the process of measuring your NPS, consider taking the following action with each category of customer to garner more specific feedback about how they scored your product/business:
Promoters: These are your happiest customers who will likely have positive things to say about your product and/or services. Request a customer quote and inquire if the customer will act as a referral.
Detractors: Follow-up with these customers and determine the issue/concern. Let them know you are committed to resolution and that you want to make them happy. If you fix the problem, they are more likely to become a longer term customer.
Passives: Reach out to them and inquire what it will take to convert them to promoters of your product/service. Ask open questions and listen to why they are on the fence. Make them promoters before they become detractors.
Why is NPS Important to Your Business?
Over the past decade, extensive research has been conducted on NPS and how it specifically relates to business growth. Some interesting statistics to consider when analyzing NPS data:
- Promoters account for 80% of referrals in most businesses and Detractors account for 80% of negative word-of-mouth.
- Promoters generally defect at lower rates than other customers, resulting in a higher customer lifetime value.
- Promoters typically cost less (when it comes to selling, marketing, and advertising), are less price sensitive, and have bigger average order sizes.
- The average company has a NPS of only 5 to 10 (Promoters barely outnumber Detractors).
- Companies with the most efficient growth engines operate with an NPS of 50 to 80.
- Companies with a better ratio of Promoters to Detractors tend to grow more rapidly than their competitors.
Need help conducting a survey to determine your company’s net promoter score or with your marketing strategy? Contact Launch Marketing today! Be sure to follow us on Twitter or like us on Facebook to keep up with the latest B2B marketing tips and trends.
Graphic Source: https://www.acuvueprofessional.com/net-promoter-score