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What is Net Promoter Score? The Ultimate Guide 2021

Net promoter score
NPS
Net Promoter Score Guide
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Divya Kandwal
September 17, 2021
10
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Ever had a question about NPS that you weren’t sure you should ask? Well, we are answering ALL those questions. In this ‘Ultimate Guide to the Net Promoter Score’, we are breaking down the definition, advantages, disadvantages, best practices of NPS.  This guide is Comprehensive (it’s so comprehensive that we’re capitalizing the C) and discusses EVERY possible question related to the Net Promoter Score.  

Here’s a list of sub-topic that this guide will cover.  

  1. What is Net Promoter Score?
  2. How do you calculate the Net Promoter Score?
  3. Importance of NPS for a brand
  4. What's a good NPS score?
  5. The difference between Transactional and Relationship Net Promoter Score
  6. How do you analyze the Net Promoter Score?
  7. How frequently should you measure NPS?
  8. How does NPS boost Growth and Profits
  9. Difference between NPS score and C-Sat score
  10. Leading companies that use NPS surveys
  11. 7 top strategies to increase your Net Promoter Score
  12. How does NPS help in customer acquisition?
  13. Should you do NPS in-house or outsource it?

What is the Net Promoter Score?

NPS or Net Promoter Score is generally regarding as the gold standard metric for customer experience. It was developed in 2003 by Fred Reichheld and measure customer loyalty based on the probability of recommendation. This is based on a single question-

On a scale of 0 to 10 (0 being the least likely and 10 the most),

“How likely are you to recommend (a product or service) to your friends and colleagues?”

Net Promoter Score® scale Numr Research Text Analytics customer feedback
Net Promoter Score Scale

Depending on the answers, the overall score can range from –100 to 100.

Based on the score, all customers are divided into 3 categories- Promoters, Passives, and Detractors.  

Promoters respond with a score of 9 or 10. They are loyal admirers of your company. They enthusiastically refer you to other people and drive recommendations. They promote business growth.

Passives respond with a score of 7 or 8. They are partially satisfied customers. They are neither haters nor admirers.  Since they are not loyal to you, they can defect to the competitor, at any time.

Detractors are those who respond with 0 to 6. They are extremely unsatisfied customers. They can damage your brand and impede growth through negative word of mouth. They usually have the highest chances of churning.

How do you calculate the Net Promoter Score?

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

For example, if 30% of your customers are detractors, 10% are passives, and the remaining 60% are promoters, you NPS is 60-30 = 30.

<Graphic>

Conceptually, Net Promoter Score® can range from –100 (if all customers give a score of 6 or less) to 100 (if all customers give a score of 9 or 10).

Why is Net Promoter Score important for a brand?

Everyone now knows that it costs 5 times more to acquire a new customer, compared to retaining an existing one. So it’s not only easier to retain a customer, it’s cheaper too. Delivering outstanding customer experience is the easiest, most effective way of retaining customers. Net Promoter Score is a metric for calculating the customer experience of a brand. It’s crucial because

  1. Net Promoter Score measure Customer Loyalty  

Net Promoter Score measures customer satisfaction. It determines the level of Loyalty in your entire customer base.  As a general rule of thumb, your Promoters are your loyal customers.  

  1. Net Promoter Score predicts Growth  

Net Promoter Score has a strong co-relation to future Revenue. A good customer experience company can tell you what impact a 5% increase in your NPS will have on your bottom-line. NPS measures Retention and the probability of repeat transactions, both of which strongly influence Growth. In fact, Fred Reichheld proved that “increasing customer retention by 5% increases profits by 25% to 95%.”

  1. It quantifies Recommendation and Word of Mouth

Word of mouth advertising and recommendations are the most convincing kind of advertising.  NPS® provides a method to quantify and measure it.

  1. NPS is quick and easy to understand  

The beauty of the Net Promoter Score® lies in its simplicity. Your customers can answer an NPS question is less than 20 seconds. An NPS program also provides companies with one simple number that everyone from the C-suite to the frontline can understand.  

5. Net Promoter Score is great for benchmarking

It’s important for companies to know where they stand compared to the competition. Since Net Promoter Score® is a standard metric used by all leading organizations; it makes it easy to benchmark your company against your competitor’s.

What is a good Net Promoter Score?

There is no such thing as a ‘good’ Net Promoter Score. The score, on its own is largely irrelevant. What matters is what the score signifies and the factors driving it.

It’s important to understand that NPS is not an absolute score. It’s relative. Meaning, it varies based on the industry. For example, for E-Commerce companies the average Net Promoter Score is 48. For Internet Service providers, it’s -7. Context matters. To check if your NPS is ‘good’, simply compare it to your industry average.  

Usually, any Net Promoter Score above 0 is ‘good’. It means you have more Promoters than Detractors. Any score above 50 is great and above 75 is industry-leading.  

What is the difference between Transactional and Relationship NPS?

A transactional NPS® survey is done immediately after a customer interacts (purchase, support call etc) with your company. The goal is to obtain granular feedback about a particular touchpoint.  

Transactional NPS® helps companies understand the quality of a specific customer interaction.

Relationship NPS, on the other hand, measures how your customers feel about your company. It is a great indicator of brand health and customer loyalty.

Additionally, it gives you a number to benchmark against industry standards. The biggest advantage of relationship NPS® is that it strongly co-relates with financials. Therefore, it is used to predict future revenue.

Ideally, a company should do both Transactional and Relationship NPS studies to understand customer experience at micro and macro levels.  

<Graphic>

How do you analyze the Net Promoter Score?

There are two kinds of statistical analysis that we use to analyze the Net Promoter Score.  

  1. Discriminate Analysis

Discriminate analysis identifies the differences in the NPS® score between various subgroups. Dividing customers into subgroups based on demographic data leads to granular insights. For instance, dividing customers into premium vs non-premium or location-based segments helps in prioritizing action.  

Discriminate analysis helps companies map out ongoing trends and formulate specific strategies for each subgroup.

  1. Regression Analysis

Regression analysis helps in understanding the factors impacting the Net Promoter Score. It identifies key drivers of NPS and revenue.

Regression analysis helps companies identify and prioritize improvements based on their predicted impact.  

When it comes to analyzing the NPS score, the end goal should be to predict growth. You should know what impact a 5% increase in your NPS score will have on your bottom-line. An insights-focused Customer Experience Management firm like us will be able to help you with this.  

<Graphic>

How frequently should you measure the Net Promoter Score?

There is no ideal frequency when it comes to measuring the Net Promoter Score. It largely depends on your industry, goals, and customer base.  

However, as a good rule of thumb, measure Relationship NPS monthly or quarterly to understand brand perception.  

Transactional NPS is real-time NPS and should be measured after EVERY customer interaction. It measures customer satisfaction at various touchpoints and therefore, its frequency depends on the frequency of customer interactions.  

Most of our clients send transactional NPS surveys several times a day. (Don’t worry. The process is entirely automated)

How does Net Promoter Score relate to Growth and Profit?

True loyalty affects Profitability. Net Promoter Score relates to Growth because,

  1. It quantifies the likelihood of Recommendation

The NPS question,  

“On a scale of 0 to 10, how likely are you to recommend us to friends and family?”

Quantifies the probability of Recommendation. Recommendations and referrals are the cheapest yet most effective way of lead generation.  

In fact, as per an article by HBR,  

“Referred customers, on average generate 16% more in profits.”

And, according to WOMMA,  

“In B2C, word of mouth’s impact is almost 20% of sales.”

  1. Net Promoter Score helps in reducing customer churn

Net Promoter Score identifies the customer segment with the highest possibility of churning, the Detractors. An NPS program makes it easier for companies to follow up with Detractors and proactively solve their issues.  

As Reichheld, the inventor of NPS claimed,  

“A 5% increase in customer retention produces more than a 25% increase in profit. And because, return customers tend to buy more from a company, the operating costs to serve them declines”.

  1. NPS leaders grow  

Statistically, NPS leaders tend to grow at more than twice the rate of their competitors. Companies with high NPS usually enjoy high growth.  

How is the NPS different from C-Sat Score?

Net Promoter Score and C-Sat (customer satisfaction) score are CX metrics. Both are used to measure a company’s overall customer experience.  

There are two major differences between NPS and C-Sat score.  

  1. The formula or method of calculation

An NPS survey is extremely short and only consists of-

  • One single question, and
  • A comment box

It’s asked on an 11-point scale and is calculated by subtracting the percentage of detractors from the percentage of promoters.

<NPS Scale here>

On the contrary, a C-Sat survey consists of several questions and is measured on a 5-point scale. It asks respondents,  

“On a scale of 1 to 5, how would you rate your overall satisfaction with our product/service?”

  • 1 being ‘Extremely Unsatisfied’
  • 2 being ‘Unsatisfied’
  • 3 means ‘Neutral’
  • 4 represents ‘Satisfied’, and  
  • 5 is ‘Extremely Satisfied’

The C-Sat score is the percentage of satisfied customers that is respondents who give a score of 4 and 5. See the formula below.

<Formula below>

  1. NPS measures ongoing customer relationships. C-Sat is specific.

Relationship NPS surveys are conducted periodically (monthly, quarterly, bi-annually) whereas C-Sat surveys are triggered after a specific event.

C-Sat surveys calculate customer satisfaction at a particular touchpoint and cannot measure customers’ evolving relationship with a company.  

Therefore, C-Sat surveys are useful to find areas for improvement whereas NPS surveys measure overall customer loyalty.  

Long story short, both have a time and place is an effective customer experience program.

What are some top companies that use NPS?

<graphic>

What are some strategies to improve the Net Promoter Score?

Here are 7 sure fire ways of improving the Net Promoter Score.

  1. Monitor your NPS consistently

Recording NPS is not a one-time exercise. Monitor your NPS in real-time through dynamic dashboards to keep up with emerging issues.  

  1. Close the loop on customer feedback

Did you know that only 10% companies utilize the customer feedback they collect? An NPS program encourages companies to follow up and ‘close the loop’ with customers. Reach out to unhappy customers (detractors) to uncover the reason behind their poor rating. Starting a dialogue (through support calls, emails, SMS) with detractors shows them that you care and prevents them from defecting.  

In case you’re interested, here’s a guide on Close Looping.

  1. Rally your entire company around NPS

Try to get the C-suite to buy-in to the Net Promoter Score/CX program. Improving NPS is not a one-man job. Rally your entire company around NPS by explaining the benefits of customer-centricity and how NPS improves Revenue.  

Get all departments and executives on board, assign NPS KPIs for teams, and set a realistic NPS goal for the company.  

  1. Decrease response time

A quick response is one of the most effective way of showing customers that you care. Use an Alert Management System (like ours) to take immediate action on customer feedback and close hot tickets.  

  1. Train the frontline with NPS data

Empower your frontline employees with data and tools to turn detractors into promoters. We use role-based, dynamic dashboards to give customer facing employees the information they need to resolve customer issues.  

In fact, we trained Toyota’s showroom/service center agents and their NPS increased by 23 points. (Case study here)

  1. Engage your promoters

Don’t alienate your promoters. Engage them with a referral program and ask them for feedback. Your promoters offer actionable insight regarding strategies and plans that worked.

  1. Find root cause

Analyze your Net Promoter Score to understand root cause. We use Text Analytics and Machine Learning to find root-cause and historical trends. This gives an insight into why your customers are detracting.

 

How does NPS help in customer acquisition?

Net Promoter Score quantifies the probability of recommendation or referral.

<NPS question and scale>

A high Net Promoter Score means most of your customers are promoters. This means, there is a high chance that your customers will recommend and refer you to their friends and family.  

Everyone knows that word-of-mouth is the strongest form of advertising. 92% consumers trust recommendations from their friends over ANY other form of advertising. (Source- Nielsen)

Therefore, improving your Net Promoter Score is an absurdly effective method for customer acquisition.

This brings us to our last question.

Should you do NPS in-house or outsource it?

The beauty of the Net Promoter Score is its simplicity. It consists of only ONE question and an open-ended comment box. With countless survey softwares available offline, it might seem like a good idea to DIY the NPS program.  

Arguably, all companies today are tech companies. In fact, if you really want to do NPS in-house, all you have to do is-

  • Sign up for a surveying software
  • Write the NPS question
  • Send it to your customers, and
  • Keep track of the score in an excel sheet

If it’s truly this simple, then why do companies outsource this to a customer experience management (CXM) company?

The answer is simple. Like we have explained before, the NPS score on its own doesn’t matter. What’s important is what the score signified. You can record NPS in-house but you’ll be hard pressed to find the reason behind the score.  

Sending a survey also includes knowing-

  • Who to send the survey to
  • When to send the survey to increase response rate
  • What to do in case of a low response rate, and much more

Call us biased but like in all cases, it’s best to defer to experts.  

Here are the top 5 reasons why you should outsource your NPS program?

1. Best Industry practices and expertise

Outsourcing your NPS program gives you access to the knowledge and strategies that your NPS vendor has tried and tested across hundreds of their clients.

2. Advanced technology, AI and Predictive Analytics

Consider this.

What impact will a 5% increase in NPS score have on your bottom-line?

Chances are, you can’t answer the question. But an experienced NPS vendor can.

In the long-term, you should be able to devise strategies that directly impact your Revenue.  

We use NumrSense AI, our AI-engine to analyze a large volume of customer comments (the second part of an NPS survey) in a matter of seconds. What’s more we use Machine Learning to show you the attributes have the strongest impact on your NPS score. It’s impossible to get these insights with an in-house NPS program.

3. It’s cheaper

Measuring the Net Promoter Score is not a one-time exercise. To truly be on top of things, you need to measure it everyday/after all transactions. Similarly, you must continuously analyze comments and feedback to identify emerging issues. The whole project (with Data Mining, Text Analytics etc.) ends up requiring a lot of people.

In the long run, it’s massively cheaper to simple outsource you NPS Program.

4. An NPS program is more than customer data collection

What most people forget is that the purpose of an NPS program is not to collect customer data and recommendation scores. What matters more, is what you DO with that data.

The main objective of an NPS program is to listen to the voice of your customers (VoC) and find actionable insights that you can use in your decision-making.

5. Higher Accuracy and Speed

Since, a CXM company has been executing NPS programs for years across various vendors; their analysis is actionable and granular.  

It’s faster as well. An in-house NPS program will be much slower, given the learning curve.

If you have to wait a month or longer to get your customer reports, then by the time you get them, you have already lost your unsatisfied customers. Outsourcing your NPS program prevents this from happening. Since the analysis is real-time, you get your reports with ample of time to spare.

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


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