How is Net Promoter Score® related to the profitability of your business?

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Divya Kandwal
September 26, 2019
mins read

Net Promoter Score® or NPS® is a Customer Experience metric. Since, it’s a proven predictor of growth, it is used by leading companies to measure Customer Loyalty. In brief, it is based on the likelihood of recommendation of your product/service.

It is calculated by a simple question, which is, on a scale of 0 to 10,

“How likely are you to recommend us to your friends and colleagues?”

Net Promoter Score® scale Numr Research Text Analytics customer feedback

And, the Net Promoter Score® is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

Net Promoter Score® measure Numr

Net Promoter Score® and Profitability

In short, the higher the Net Promoter Score®, the higher the Profitability. One of the strongest features of a Relational NPS® initiative is that it establishes a chain of continuous feedback. And, what gets measured, gets managed.

Moreover, Net Promoter Score®s also measures factors that strongly affect Profitability.

1. NPS® measures Customer Loyalty and Recommendation which affect Profitability

As Fred Reichheld, the inventor of NPS® wrote, “True Loyalty clearly affects profitability”. In fact, the best path to sustainable, organic growth is long-term Customer Loyalty.

NPS® divides all customers into Promoters, Passives and Detractors.

Briefly, customers that give a Score® of 9 to 10 are termed Promoters. These are your loyal admirers who drive recommendations through word of mouth.

And, customers who provide a score of 6 to 8 are Passives.

Additionally, customers who give a score of less than 6 are called Detractors. These have the highest probability of churning. Furthermore, they damage your brand through negative word of mouth.

As echoed in an article from the Harvard Business Review, referred customers, on average, generate 16% more in profits. In fact, according to WOMMA, in B2C, word of mouth’s impact is almost 20% of sales. Furthermore, customers acquired through recommendations have an 18% Churn Rate than non-referred. And, 84% of consumers trust the recommendations of others over other forms of marketing.

Therefore, Recommendations and referrals are the cheapest yet most effective way of generating leads and customer acquisition.

2. Net Promoter Score® lowers Customer Attrition/Churn

Managing Customer Attrition/Churn is crucial for business growth. Net Promoter Score® helps in identifying the customers with the highest possibility of churning, the Detractors. As echoed by Reichheld, “5% increase in customer retention produces more than a 25% increase in profit.” Because, “return customers tend to buy more form a company, operating costs to serve them declines”. Besides, retaining existing customers is cheaper and more profitable than acquiring new ones.

Net Promoter Score® makes it easy for companies to identify Detractors and follow up with them, thereby decreasing Churn. Consequently, it increases Profitability.

(To learn how NUMR, a customer experience management (CXM) company uses Drivers Test and Predictive Analytics to manage churn, read this.)

3. Higher Growth and Profitability

NPS® leaders tend to grow at more than twice the rate of their competitors.  Companies with high NPS® also enjoy high Growth. Furthermore, It has been proven numerous times that NPS® has a strong co-relation to Growth and Profitability.

In conclusion, a well-implemented Net Promoter Score® program is essential for the growth of any company.

*Net promoter Score® and NPS® are registered trademarks of Bain & Company, Satmetrix and Fred Reichheld

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