What if there was a single question that would reveal your organization’s performance through your customers’ eyes?
That’s the promise of the Net Promoter Score (NPS), an index which becomes ever more relevant as customers become ever more interconnected.
NPS is an index ranging from -100 to 100. Originally created by Bain and Co, it measures the willingness of customers to recommend a company’s products or services to others. As such, it’s a useful proxy for gauging customers’ overall satisfaction with a product or service, and loyalty to a brand.
NPS helps companies focus on addressing the concerns of unhappy customers, and turn them into promoters who evangelise the company and facilitate increased sales.
Gathering Customer Input
Customers are asked to rate on an 11-point scale the likelihood of recommending the company or brand to a friend or colleague.
“On a scale of 0 to 10, how likely are you to recommend this company’s product or service to a friend or a colleague?”
Based on their response, customers are then classified into three categories: detractors, passives and promoters.
“Detractors” are those who gave a score of 6 or lower. Their score indicates they’re not particularly thrilled by the product or the service. It’s unlikely they’ll purchase again. They could potentially damage the company’s reputation through negative word of mouth.‘Passives’ gave a score of 7 or 8. They are somewhat satisfied but could easily switch to a competitor’s offering if given the opportunity. They probably wouldn’t spread any negative word-of-mouth, but are not enthusiastic enough about your products or services to actually promote them.
“Promoters” answered 9 or 10. They love the company’s products and services. They’re repeat buyers, enthusiastic evangelists who recommend the company’s products and services to other potential buyers.
Net Promoter Score is determined by subtracting the percentage of customers who are detractors from the percentage who are promoters.
The index will fall between -100 and 100. At one end of the spectrum, if all customers surveyed gave a score of 6 or lower, this would lead to a NPS of -100. On the other end of the spectrum, if all of the customers responded with a 9 or 10, then the NPS would be 100.
If a company has more detractors than promoters their NPS will be negative, and vice versa.
Why care about NPS?
The balance of detractors and promoters indicates a company’s potential for success. Higher Net Promoter Scores indicate a healthier business. But Net Promoter Scores often average quite low.
A study by Fred Reichheld, who calculated NPS for 400 companies in 2003 (HBR article “The One Number You Need to Grow”) found that the median NPS was just 16.
It costs a company much more money to win back a detractor than to simply keeping promoters on board. Detractors may file complaints, bog down customer service lines and tie up resources. They won’t buy more products and services, and they may actively discourage others from buying.
Promoters will not only buy more from you, they’ll require less customer service, and actively refer others. The free publicity they provide will add to your marketing efforts. In fact, their recommendations are likely to be more credible than your own marketing.
The Temkin Group’s analysis “The Economics of Net Promoter” found that “compared to detractors, promoters are almost six times as likely to forgive, are more than five times as likely to repurchase, and are more than twice as likely as detractors to actually recommend a company.”
Bain and Co found that, for most industries, NPS accounts for 20% to 60% of a company’s organic growth rate. On average, industry leaders have a NPS more than double their competitors. (Here’s Bain and Co’s study “NPS and growth”.)
Using NPS to grow
Calculation and successful use of NPS requires company-wide commitment. There needs to be a closed loop from gathering data, analysing root causes for poor scores, through to taking corrective actions.
Companies like Medallia offer multiple programs that capture and report NPS data in realtime. Their native text analytics automatically analyses verbatim feedback, uncovers and quantifies what a company does well and what it can fix or improve, and even issues alert when detractors share their views.