What number does your business use to define success? Businesses use many different metrics to measure performance, from profitability to employee satisfaction. A net promoter score (NPS) is another metric which focuses on client satisfaction. This article proposes that the NPS is a better way to measure business success compared to other measures.
What is the NPS?
A NPS essentially measures customer satisfaction but is also linked to predicting business growth. It does this by gauging the loyalty of your customers and correlating this to revenue growth.
A company’s overall NPS score provides a measure of how your customers perceive your brand and service. The Net Promoter website states that the NPS is a “leading indicator of growth”.
How Does the NPS Work?
The NPS is a satisfaction score. Customers are asked: How likely are you to recommend [your product, service or brand] to a friend on a scale of 0 to 10?
The NPS then divides your customers into three categories based on the number they choose:
- passive; or
|Customer Type||Definition||NPS Response Score|
|Promoter||Customers who are enthusiastic and loyal to your company. They have a higher likelihood of promoting your company to friends and family.||9-10|
|Passive||These customers are happy but could move to competitors if they are offered a better deal.||7-8|
|Detractor||These customers are unhappy with your service or product. They are more likely to switch to a competitor and may warn potential customers to not use your services.||0-6|
Your company’s overall NPS can range from -100 to 100 and is calculated by subtracting the percentage of detractors from promoters.
How Does Your NPS Relate to Your Business’ Success?
NPS measures loyalty, not just satisfaction. If you asked customers, “How do you rate your experience?”, they are providing a score of how happy they are with your service at that moment.
While this can be useful, it does not measure how loyal that customer is and how likely they are to return to your company.
The way the NPS survey frames the question ensures you know whether a customer is likely to come back.
Secondly, promoters behave differently from detractors. Customers who give you a higher NPS score are usually less price sensitive because they believe they are receiving good value. They are also likely to buy more and refer your company to those in their network.
In contrast, detractors behave in the opposite way. As well as steering customers away from your company, they are more likely to be price-sensitive and shop around with competitors. Knowing who your customers are and what motivates them can help you make future strategic decisions.
Customer Lifetime Value
Greater customer lifetime value increases your revenue growth. Since detractors are more likely to shop around, they have a small lifetime value for your company.
Conversely, promoters are more likely to have a profitable relationship with your company as they buy more of your services and refer others. If you increase the number of promoters, your company can increase the lifetime value for each customer.
Finally, if your promoters are more likely to refer your company to others, you are gaining potential customers through reputation or referrals. This can reduce your customer acquisition cost, since you’re spending less on sales and marketing for those new customers.
Why is NPS Better Than Other Metrics?
Other metrics focus on revenue growth or measure how happy customers are, without linking them together. For example, measuring revenue growth does not provide metrics on what impacts that number, such as employee performance and customer satisfaction.
Measuring employee satisfaction is important because it relates to loyalty and productivity. However, employee satisfaction doesn’t take into account how happy your customers are.
A NPS score gives an indication of:
- your customer’s satisfaction;
- whether they will promote your company to others; and
- because of this, the possibility of that customer increasing your revenue.
In addition, it is a very clear scoring system that can easily be understood by management and employees to improve your customer’s experience.
Ultimately, you should complement your NPS with other metrics that give additional insight into your customers’ journeys. However, the NPS itself is a clear score that can be a central part of how you measure and respond to your customers’ experience.
How Do You Implement the NPS into Your Business?
If you want to start measuring customer satisfaction and revenue growth through the NPS score, you need to implement it into your business processes correctly. You should consider questions such as:
|When should I ask my customers for feedback?||The answer will depend on the kind of products or services you sell.|
|How will I ask customers for feedback?||Is email the most appropriate way to ask customers? For example, some product companies may ask customers for feedback in store.|
|What question should I ask my customers?||Generally, the ultimate NPS question is framed as, “On a scale of 0-10, how likely is it that you would recommend us (or your product/service/brand) to a friend or colleague?”|
|Will I include a follow up question?||For example, “What is the primary reason for your score?”|
|How will my business handle promoters, passives and detractors?||For example, will you call all responders or just detractors?|
|How will my business action the feedback of my customers and make improvements?||For example, you may formally implement a customer experience program or have management assess the scores and comments and make changes based on this feedback.|
|How will I connect my employees with the process?||Your frontline employees play a huge role in how customers view your company. Any action you take needs to be communicated to all of your staff so that they can be coached on any improvements and understand the experience customers have had.|
The NPS is a way to measure whether your customers are likely to promote your company to others. Additionally, it measures customer satisfaction with your product or service.
Your NPS is easy to understand and can be used in conjunction with other metrics to improve your customer experience and increase revenue growth. If you decide to implement the NPS in your business, you need to decide when and how your customers will receive the survey as well as how your team will action the responses you receive.
Implementing the NPS is an important step in how you handle your customer relationships and it should be approached with the customer front of mind. When it is implemented correctly, it becomes a driver of growth rather than just another number.
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