In an ideal world, every company hopes to build legions of loyal, satisfied customers who will not only provide them with repeat business, but enthusiastically promote their company to friends and family.
Word of mouth and positive customer recommendations have countless benefits for a business, particularly one in the process of establishing itself. They help to widen a business’ customer base, bring in new prospects, and reach demographics that the business might not have thought to target, or might not be targeting with their current marketing strategy.
No doubt you’ve heard the well-worn statistic that 83% of consumers are prepared to trust recommendations from their family and friends when making a purchase decision – making word of mouth the most trusted method of advertising, according to Nielsen – but it rings true. How many times have you acted on a recommendation when deciding where to eat, which new coffee shop to visit, or which plumber to hire – or avoided a business or service based on someone else’s negative experience?
Given the sheer amount of choice that we’re faced with when it comes to buying goods and services, one solid recommendation can make a world of difference.
However, if you’ve been thinking of “likelihood that customers will recommend my business to others” as an elusive quality that can’t be measured directly or influenced, the good news is that it can. There is a metric for measuring this, and it’s called a Net Promoter Score (NPS).
What is a Net Promoter Score (NPS) and how is it calculated?
Net Promoter Score (NPS) is a metric for measuring customer satisfaction which calculates how likely a customer is to recommend a business to a friend or family member.
Calculating Net Promoter Score starts by asking customers to answer a single, straightforward question,
“On a scale of 0 to 10, how likely are you to recommend [name of business] to a friend?”
No doubt you’ll remember being asked this exact question in a fair few surveys after using a service or buying from a retailer. Now you know what it’s for.
After respondents give their rating (where 0 is “Not at all likely” and 10 is “Extremely likely”), they’re categorised into one of three groups. Customers who rated the business from 0 to 6 are known as “Detractors”, customers who gave a rating of 7 or 8 are known as “Passives”, and customers who rated the business 9 or 10 are known as “Promoters”.
As you might have guessed, promoters are the ultimate goal: customers who are so outstandingly happy with and loyal to your business that they’ll recommend it to anyone they come across. Passives are customers who are satisfied, but ultimately indifferent when it comes to proactively recommending a business; they could be nudged up to the level of promoter with a few more positive experiences, or they could switch to a competitor.
Detractors are bad news: customers who have had an unsatisfactory experience with a business and are much more likely to warn their friends away from that business than to recommend it. They’re customers that a business is at high risk of losing, and they could also damage the brand by spreading the word about their bad experiences. Unfortunately, word of mouth cuts both ways in that respect.
To obtain your Net Promoter Score, subtract the percentage of detractors (customers who gave a rating of 6 or less) from the percentage of promoters (customers who rated 9 or 10). So, if your customer base is 50% promoters and 20% detractors (passives aren’t counted in the equation as they could go either way), you would have a Net Promoter Score of 30.
The higher the figure, the better your NPS and the more likely it is that customers will recommend your business.
Why do you need a Net Promoter Score?
As I outlined in the introduction, there are a lot of reasons why having satisfied customers who are prepared to recommend your business is beneficial. But here are some reasons why it’s also useful to be able to measure that with a single metric and track your efforts to improve it:
It provides a quantifiable goal to focus on
Improving customer experience, loyalty and satisfaction might all be goals that your business is working towards, but how can you know when you’re making progress?
By tracking your Net Promoter Score, you can benchmark your progress with customer satisfaction with a concrete metric that you can feature in reports and align your teams around. It turns a quality that is very nebulous and qualitative – customer satisfaction to the point of proactively recommending your business to others – into something quantitative and measurable.
You might rightly be thinking that not everything you need to know about customer satisfaction and loyalty can be summed up in a single number, and it’s true that NPS gives you more insight into what customers are feeling about your business than into why they’re feeling that way.
However, knowing the “what” is necessary to discovering the “why” – and measuring NPS can also give you opportunities to collect qualitative feedback from your customers, something we’ll go into a little later on.
It can give insights into customer behaviour
One of the reasons that Net Promoter Score (NPS) is so valued by businesses is that it can give insights into how customers interact with your business, and the actions they are likely to take – such as repeat purchases or rebookings, recommendations to a friend, trying new product offers, and so on.
For example, a 2017 report by Temkin Group into the economics of the NPS found that promoters were more than four times more likely to re-purchase from a company, more than five times more likely to forgive a company if it makes a mistake, and more than seven times more likely to try new offerings from a company.
You can even use the “promoter”, “passive” and “detractor” groupings as a basis for building customer personas, and use them to predict how different segments of your customer base will act, as well as plan how you will target your messaging at each group in order to win them back over, retain them, improve their experience, or capitalise on their loyalty.
It can provide an indicator of customer feeling towards your business in times of change
As your business undergoes changes – whether that be a new product launch, a revamped website, or perhaps an acquisition – your Net Promoter Score can act as a bellwether for how customers are feeling towards your business during the change.
Big swings can indicate something is amiss that you need to rectify (though a big positive upswing in NPS should be good – as long as you can maintain it!), while business as usual could either mean that customers are still happy with your business, or that the improvements you were hoping for haven’t materialised.
Again, while it won’t always tell you why, it can give you an invaluable jumping-off point, or an extra data point on the chart.
Ways to improve your Net Promoter Score
Now that we’ve established what a Net Promoter Score is and why it’s important, what are some techniques you can use to improve yours? Here are four actions you can take that will help to boost your Net Promoter Score.
Provide a space for comments when surveying your customers
This is a simple step, but crucial: when you survey your customers to obtain your Net Promoter Score, provide a space for their comments after asking them to rate your business.
This is especially important as a means of obtaining feedback from your less-than-satisfied customers – the passives and the detractors – but it can also give an insight into what your loyal, devoted customers really love about your business, and what they want you to do more of.
Collate the feedback received from your customers and look for trends. Are there some obvious pain points that you could fix? Are customers consistently reporting dissatisfaction with a particular area of your business?
Listening to what your customers tell you about why they would or wouldn’t recommend your business to others is a simple way to improve your Net Promoter Score – and by association, your quality of service and referrals.
Be responsive to all customer feedback
Of course, the only time you listen to and act on your customers’ concerns shouldn’t just be during a dedicated survey. Be responsive and attentive to feedback from your customers on all fronts: online reviews, on social media, during customer support interactions. All of these can give invaluable information about how to improve your service, and the frustrations that your customers are experiencing.
Be visible with your responses, as well. By all means follow up with your customers in private – but make sure that you’re seen to be responding to and addressing your customers’ concerns where they’re posted on public channels. Not only will it reassure your customers and improve your reputation as a proactive and accessible company, but your customers will be more likely to leave feedback if they think it’s being heard.
How to deal with bad reviews (and why it pays to do so)
Encourage customers to refer your business
It’s all well and good building up a loyal base of promoters and winning over your detractors – but the word won’t spread very far if your customers don’t know how to refer their friends.
Encourage customers to share their experiences with your brand on social media, leave a review, or invite their friends. You can offer incentives and deals for customers who refer their friends – a lot of businesses, particularly subscription box services like Graze and Hello Fresh, have seen great success by giving customers promotional referral codes that benefit both parties. Create special rewards for your customers who refer the most friends.
Referred customers are more valuable to your business: a study of a leading German bank in 2013 found that customers who were acquired through the bank’s referral program had a 16% higher lifetime value and an 18% lower rate of churn. And new customers who were referred by loyal, enthusiastic friends may well go on to become loyal, enthusiastic promoters of the business themselves.
Focus on improving the experience – not just the score
At the end of the day, NPS is just a metric, and a single one at that. While I’ve talked it up as an extremely useful insight into your customer loyalty and satisfaction – which it is – you shouldn’t fall into the trap of focusing on the number for its own sake.
While you should aim to improve your Net Promoter score, it shouldn’t be to the exclusion of all else – and NPS should be just one of a number of customer satisfaction and loyalty metrics that you have in your arsenal. For more ways to measure customers’ experience with your business, check out our previous article: What is customer experience? How can it be measured? And who should own it?
After all, your Net Promoter Score is an indicator of customer experience – and focusing on improving the customer experience will always be the most effective way to increase it.
For a deep dive into Customer Experience planning, strategy and design, take Econsultancy’s three-day Customer Experience Masterclass.