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11 Apr 2018 by Sadie Burgess
Net Promoter Score (NPS) is a
customer loyalty metric developed by (and a registered trademark of) Fred
Reichheld, Bain & Company, and Satmetrix. It was introduced by Reichheld in
his 2003 Harvard Business Review article "One Number You Need to
NPS is a powerful tool in gauging customer loyalty and, by extension, company health. By asking your customers a short questionnaire you can receive feedback on how you can improve your service or offering and identify customers who may be willing to provide testimonials or become case study candidates. Easy to understand and having been shown to directly correlate with future revenues NPS is a great tool to have in your armoury.
What is NPS?
The Net Promoter Score is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others. It is used as illustration of the customer’s overall satisfaction with a company’s product or service and the customer’s loyalty to the brand.
For basic NPS customers are surveyed on a single question. They are asked to rate on an 11-point scale the likelihood of recommending the company or brand to a friend or colleague. “On a scale of 0 to 10, how likely are you to recommend this company’s product or service to a friend or a colleague?” Based on their rating, customers are then classified in 3 categories: detractors, passives and promoters.
‘Detractors’ gave a score lower or equal to 6. They are not particularly thrilled by the product or the service. They, with all likelihood, won’t purchase again from the company and could potentially be damaging the company’s reputation through negative word of mouth.
‘Passives’ gave a score of 7 or 8. They are somewhat satisfied but could easily switch to a competitor’s offering if given the opportunity. They probably wouldn’t spread any negative word-of-mouth, but are not enthusiastic enough about your products or services to actually promote them.
‘Promoters’ answered 9 or 10. They love the company’s products and services. They are the repeat buyers, are the enthusiastic evangelist who recommends the company products and services to other potential buyers.
The Net Promoter Score (NPS) is determined by subtracting the percentage of customers who are detractors from the percentage who are promoters. What is generated is a score between -100 and 100 called the Net Promoter Score. At one end of the spectrum, if when surveyed, all of the customers gave a score lower or equal to 6, this would lead to a NPS of -100. On the other end of the spectrum, if all of the customers were answering the question with a 9 or 10, then the total Net Promoter Score would be 100.
Using NPS as a benchmark you can work to build your customer loyalty and increase business value, as it is more cost effective to resell to a customer rather than the investment required to find and sell to a new client. Increasing customer retention has a very positive effect on the bottom line.
All companies seek to grow. And growth—profitable, sustainable organic growth—occurs most often when customers and employees love doing business with a company and sing its praises to neighbors, friends and colleagues.
You will also gain valuable insights from both happy and unhappy customers to make your product or service developments in line with customer needs and wants. It enables you to constantly adjust your business to meet what customers want without over-delivering in one area or under-delivering in another. It helps you to be the most efficient and effective business possible.
If you are interested in finding out more on how
e-shot™ can help you run your first NPS email campaign, simply speak to your
account manager to find out more.