Your net promoter score (NPS) can tell you a lot about customer loyalty, but is it enough?
- Customer satisfaction surveys across the country will ask people to rate from one to ten how likely they would recommend their company's services or products to a friend. This will measure a company's Net Promoter Score.
- Though the range of one to 10 sounds like a great way to manage feedback, it is rather relative if the right parameters are not in place.
- By measuring your Net Promoter Score, you can quantify your customer loyalty. Loyalty is not a tangible number like sales or profit, but NPS makes this easier to gauge.
Since it was first published in the Harvard Business Review in 2003, the net promoter score (NPS) has been known as the one number every business needs to grow. Designed to discover whether customers would be willing to recommend your business to a friend, the NPS indicates the growth of a business based on its customer loyalty.
But while it's an important gauge of company success, can it really tell you everything you need to know about your business's future?
What is a net promoter score?
The net promoter score is a way to categorize customers based on their response to promoting your business by referral. There are three different segments that survey answers fall under.
The first is a promoter. A promoter is likely to recommend your company enthusiastically. On a scale from one to 10, they answer with a nine or higher.
The second is a passive. A passive is typically satisfied, but are not as enthusiastic about the business as a promoter. If your competitor is offering a great option, they might take it. On a scale from one to 10, their answers are seven or eight.
The last is a detractor. With answers falling at or below six, detractors can destroy a business with word of mouth. Whether it was a negative experience they had, or simply the fact that they do not like the font that you use, detractors will post about how much they do not like your business.
Limitations of NPS
While NPS does give a valuable snapshot of how much loyalty customers feel to a business, there are many things it can't capture.
"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."
While NPS tells you how customers feel about your business at a specific moment, it doesn't tell you why they feel that way or what needs to change in order for your business to grow.
The value of survey research
If you want to understand why customers feel the way they do about your business, the best thing you can do is ask them directly. This requires formal or informal survey research.
Agreeable Research provides businesses with its Networked Survey software, which allows promoters and detractors to see and rate each other's opinions. This gives businesses insight into strengths and weaknesses.
Which form of survey research you choose will vary depending on the size of your business and budget.
"There's a lot of anxiety in the research space about methodology," Garcia said.
But method isn't the most important thing to focus on. What matters is talking directly to your own customers and finding out their thoughts on your business specifically. The opinions they share will tell you exactly 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?"
How do you calculate your net promoter score?
The net promoter score is the percentage of promoters minus the percentage of detractors. In order to have these percentages, it is best to survey a large pool of your customers. Make sure to prevent the same customer from taking the survey twice, if possible, in order to have an accurate score.
Ideally, you would have 100 responses to make the math easy.
What is an example of a net promoter sScore?
As mentioned before, a net promoter score is the difference between promoters and detractors.
If a company has 75% of their survey responses with a nine or 10 and 5% with a score of six or below, then the company would have a NPS of 70.
How should businesses use NPS?
Although NPS doesn't give you any insight into why customers feel the way they do, it's still valuable, said Garcia.
"It does measure customer loyalty, and … you can't manage what you don't measure," he said.
Garcia recommends that businesses use the insights from survey research to improve their business models. From there, you can gauge how successful the improvements are 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," said Garcia. "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, which gives 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."