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Is Net Promoter Score Still Useful?

Dock Treece
Dock Treece
Business News Daily Contributing Writer
Updated Jun 29, 2022

Your Net Promoter Score (NPS) can tell you a lot about customer loyalty, but is it enough?

  • The Net Promoter Score categorizes customers based on the likelihood that they will recommend your business.
  • NPS responses fall into three categories: promoter, passive and detractor.
  • While an NPS provides a valuable snapshot of customer loyalty, it doesn’t explain why customers feel the way they do – or what you should change.
  • This article is for small business owners who want to understand their Net Promoter Score and improve customer satisfaction.

Since it was first discussed in the Harvard Business Review in 2003, the Net Promoter Score (NPS) has been a crucial metric for determining the likelihood that a business will grow. A company’s NPS reveals whether or not customers are willing to recommend the business to a friend or relative, using loyalty levels to measure the customer experience and predict business growth and success.

However, while your NPS is a crucial gauge of customer satisfaction, it doesn’t tell you everything you need to know about your business’s future.

What is a Net Promoter Score?

A Net Promoter Score categorizes customers based on their responses to a survey about whether or not they have referred your business. Survey answers fall into three segments: 

  1. Promoter. A promoter is likely to recommend your company enthusiastically. On a scale of 1-10, they answer with a 9 or higher.
  2. Passive. A passive is typically satisfied, but not as enthusiastic about the business as a promoter. If your competitor offers an excellent option, this customer might take it. On a scale of 1-10, their answers are 7 or 8.
  3. Detractor. With answers falling at or below 6, detractors can destroy a business with negative word-of-mouth. Whether they had an adverse experience or didn’t like the font you use, detractors are likely to post about how much they do not like your business.

How do you calculate your Net Promoter Score?

The NPS is the percentage of promoters minus the percentage of detractors.

For example, if 75% of a company’s customer survey responses reported a nine or 10, and 5% reported a score of six or less, the company would have an NPS of 70.

To ensure a more accurate score, include a large customer pool, and don’t allow the same customer to take the survey twice. 

Did you know?Did you know?: SMS text message surveys let you send NPS surveys to a broad customer base quickly and efficiently.

What are the pros and cons of an NPS?

An NPS provides valuable information about your customers’ satisfaction and loyalty levels, but it’s not an all-inclusive metric for business improvement. 

Pros

  • NPS provides current customer perceptions. A good Net Promoter Score can reflect a generally positive perception of your business.
  • It offers measurable goals. Tracking your NPS over time can give your team a way to measure improvements in customer service and satisfaction.
  • It demonstrates goodwill level. A high NPS reflects positive goodwill for your business.
  • It can boost referrals. Increasing your business’s NPS can improve your chances of winning referral business.

Cons

  • Your NPS doesn’t show you how to improve. While an NPS offers a valuable snapshot of how much loyalty customers feel toward a business, it doesn’t tell you what you need to do to improve or what you need to change to grow. “NPS is a fantastic quick metric you can use to gauge whether or not you are performing,” said Alan Garcia, CEO and founder of Agreeable Research, a survey research platform. “But it doesn’t tell you where to go.”
  • An NPS doesn’t tell you why customers feel the way they do. An NPS tells you how customers feel about your business at a specific moment, but it doesn’t tell you why they feel that way. You won’t have specific information about what you’re doing right or wrong.
  • There may be better metrics for your business. NPS is sometimes considered obsolete because other options exist to measure specific perceptions of a business.

Other business surveys that provide valuable insights 

The NPS isn’t the only type of business survey that can provide valuable insights. In general, formal and informal survey research will help you understand why customers feel the way they do about your business. 

Here are a few other survey types: 

  • Customer satisfaction surveys help you figure out why customers feel the way they feel about your business. They allow you to tailor questions specifically so you know what you’re doing right and what you need to change.
  • Market research surveys help you obtain crucial data about your market, target customer and customer demographics
  • Lead generation surveys are focused tools that help you gather leads’ contact information and build an email contact list
  • Brand awareness surveys help you measure how well customers know your brand, company mission, logo and more.

The type of survey research you choose will depend on your business’s size and budget.

“There’s a lot of anxiety in the research space about methodology,” Garcia said. However, the method you use isn’t as important as making an effort to speak directly to your customers, discovering how they feel and think about your business. Customer insights can tell you precisely where your business is successful – and where you might need to make changes.

“You don’t want to invest in general insights,” Garcia said. “You want to know who your exact customer base is. What are the things you need to do to optimize from where you are, not just general marketing trends that are divorced from your day-to-day?”

TipTip: Create online forms as an efficient, organized way to collect customer survey data.

How you can use NPS to gauge improvements

While your NPS doesn’t explain why customers feel the way they do, it’s still a valuable indicator.

Garcia recommends using the insights from survey research to improve your business model. From there, you can gauge the success of any improvements by the changes in your Net Promoter Score.

“One of the biggest points of confusion with NPS is that you don’t want to say your one NPS number,” Garcia said. “You want to see the change in that score over time.”

Survey research tells you how to create loyal customers. How your NPS changes over time shows whether you are gaining or losing those loyal customers, providing a clear picture of how your business is growing.

Knowing those two things, Garcia said, “will put you in the best possible position, regardless of what your NPS metric is day to day.”

Alternatives to the Net Promoter Score 

In addition to the Net Promoter Score, you can use other tools to measure customer satisfaction or loyalty.

  • Customer Satisfaction Score: This is a score of 1-5 based on customers’ ratings of their satisfaction with your business.
  • Customer Effort Score: Customer effort measures the amount of effort customers say was required to deal with the company on a scale of 1-5, with 1 being the lowest effort.
  • Churn/turnover: This measures the portion of your customers who stop doing business with you in a given period. Lower churn generally reflects higher satisfaction.
  • Customer Health Score: This score is more subjective and depends on the variable(s) you want to use. Whether you use weekly or monthly engagements, annual revenue per customer, or something else, this score helps you identify customers whose engagement with your business is lagging and help them reengage.

Not all of these scores are helpful for all businesses. Depending on your business’s size and scope, a straightforward measure like customer satisfaction may prove more helpful than NPS. Alternatively, you may benefit from picking your own variables to calculate and track Customer Health Scores.

Did you know?Did you know?: a href=”/6174-customer-loyalty-programs.html”>Customer loyalty programs reward customers with perks while providing your business with valuable data for opt-in marketing campaigns.

NPS: A potentially insightful metric

Your company’s Net Promoter Score measures its favorability among customers and how likely customers are to recommend your business to friends and family. Some market researchers believe NPS is obsolete and that newer alternatives are more accurate and helpful. However, NPS can still help business owners and managers track customer satisfaction over time and make crucial improvements to boost goodwill.

Katharine Paljug contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

Image Credit:

jacoblund / Getty Images

Dock Treece
Dock Treece
Business News Daily Contributing Writer
Dock David Treece is a contributor who has written extensively about business finance, including SBA loans and alternative lending. He previously worked as a financial advisor and registered investment advisor, as well as served on the FINRA Small Firm Advisory Board. He previously held FINRA Series 7, 24, 27, and 66 licenses.