A Startup’s Guide to Net Promoter Score

Guide to Net Promoter Score

Satisfied clients don’t just help your company generate more leads and acquire more business. They also help you increase the customer lifetime value, reduce your churn rate and finally generate more revenue.

It’s widely acknowledged among entrepreneurs that organic referrals from existing customers to other prospects are usually the most valuable and highly converting lead sources for a business.

How likely are your customers to recommend you to their friends, colleagues and work acquaintances? Wouldn’t it be convenient if there were a metric that you could use to assess that?

Luckily, there is. In this article we’re going to dive into Net Promoter Score®, a metric used to assess how loyal your customers are and how likely they are to recommend your company to their personal and professional network.

What is Net Promoter Score?

Net Promoter Score is a metric that measures the chance of a customer recommending your business, product or service to their friends, colleagues, work acquaintances and other contacts.

Think of it as a numerical value assigned to how loyal your customers are. It’s a really simple metric that can either be negative (every single customer has a negative opinion) or positive (every customer has a positive opinion).

A positive Net Promoter Score means your customers are loyal and likely to promote your brand to their personal and professional network. A negative Net Promoter Score means you may have some customer satisfaction problems that should be quickly rectified.

Companies offering an amazing customer experience to their clients usually have a higher NPS. For example, Apple has a massively positive Net Promoter Score of 72, indicating that its customers are very loyal and are more likely to recommend Apple products to their friends.

On the other hand, companies that score lower on the NPS scale are known to have a poor customer experience that subsequently leads to high customer churn rate.

Net Promoter Score was first developed by Fred Reichheld, Bain & Company and Satmetrix in 2003. Since then it has been used heavily by Fortune 5000 companies to assess customer satisfaction and has become an important metric for growth-driven technology businesses.

 

What is Net Promoter Score?
What is Net Promoter Score?

Why Net Promoter Score matters

How much does it cost your business to acquire a new customer? The more valuable each of your customers are, the more important it is to make sure they’re happy with your product or service and likely to recommend your business to their friends.

Measuring and assessing your startup’s Net Promoter Score can help you reduce churn, improve customer retention and increase the number of referrals you receive from your existing customers (brand advocates).

Measuring and assessing NPS can help you reduce churn, improve retention and increase referrals from your customers. Click To Tweet

That’s a triple win. Not bad, right? By paying attention to your company’s NPS, you can also spot problems causing major issues that hurt your startup’s growth. Closing the feedback loop and addressing the issues reported by customers has a considerable impact on a business’ growth.

How does Net Promoter work

Net Promoter Score is calculated by segmenting customers into three categories based on their opinion of your company:

  • Promoters are happy, loyal customers who love your brand. They’re likely to spread positive word of mouth and recommend your company to their friends, colleagues and connections. Use them to get more business by encouraging them to spread their positive feelings to others.
  • Passives are customers who usually feel satisfied with your business, but aren’t especially enthusiastic. They’re unlikely to spread negative word of mouth about your brand, but there’s also a risk of them leaving for a competitor with a slightly better offering, once the chance arises.
  • Detractors are unhappy, unsatisfied customers who dislike your business. They’re far more likely to spread negative word of mouth and hurt your growth rate than they are to recommend you to anyone.
  • Non-respondents are the customers who decided to ignore your NPS survey. Even though they are excluded from NPS calculation, based on a few case-studies, non-respondents is a customer segment that churns the most, even more than passives or detractors.
Net Promoter Score calculation
Calculate your Net Promoter Score

Net Promoter Score groups your customers into one of these three categories by asking them a simple question: “On a scale from 0 to 10, how likely are you to recommend [brand] to a friend or colleague?”

Customers that answer 0 to 6 are Detractors. Customers that answer 7 or 8 are Passives. Customers that answer 9 and 10 are Promoters.

As a business, your goal should always be to maximize the number of customers you have who are 9s and 10s, all while keeping the number of Detractors and Passives as low as possible.

From here, working out your Net Promoter Score is just a matter of calculating the percentage of your business’ customers who are Promoters, then subtracting the percentage of customers who are Detractors.

After this, you’re left with a positive or negative score of between -100 and 100.

What is a good Net Promoter Score

The higher your Net Promoter Score, the more loyal and satisfied your customers are with your business’ offer. A company with a Net Promoter Score of -100 has only unhappy customers and is unlikely to grow (or even continue operating for long), whereas a business with a Net Promoter Score of 60 to 100 has an entire army of loyal and extremely satisfied customers.

Net Promoter Score is a great metric for measuring the general satisfaction of your customers, so it’s important to give it the attention it deserves. It’s also a highly volatile metric that varies hugely from one industry to another, so there’s no reason to panic if your Net Promoter Score is not perfect.

As a general rule, a Net Promoter Score that’s barely positive indicates that your business has a lot of work to do in order to improve its customer experience. A NPS® score of 50+ indicates that your startup is doing well and has far more happy than unhappy customers.

With an NPS of 75 or more, you’re likely to be generating a significant amount of growth from customer referrals. The higher your NPS score, the more likely it is that customer referrals will become a major source of new leads and drive more revenue for your business.

Few startups can achieve a perfect NPS, but your goal as a founder or executive should be to achieve a highly possible one. After all, a high Net Promoter Score means your business is more likely to:

  • Attract referrals from highly satisfied customers
  • Grow without having to aggressively spend on paid customer acquisition channels
  • Retain existing customers and minimize your churn rate
  • Create an overall better experience for your customers and target audience

Compare Net Promoter Scores internally

In a competition driven market, many companies put way more effort into proving publicly that they are better than their competition instead of working on improving their product and customer satisfaction.

NPS is a number that helps you easily track your customers’ sentiment towards your brand and how it changes over time. If you notice a significant change in the number treat it as an important piece of information, which requires certain measures or actions to be taken. Try to always strive for a better score than your last one.

It is normal to compare scores with your competitors and learn where you stand amongst them. But there are so many factors to take into account that you might end up realizing that it is actually irrelevant and even if you have a lower score than any of your competitors, you might actually provide a better product to your customers.

The most important aspect of NPS that many users miss is that the number is just a metric that helps you track the relationship you’ve created with your customers and how well are you maintaining it.

Net Promoter Score main purpose lies in helping you receive feedback that you can immediately act on to start improving your product or service. It also gives you the opportunity to improve the relationship with every customer.

NPS Imperfections

NPS has been criticized for fabricating an inaccurate picture of customer happiness. But, how valid are these arguments and how do they impact the score interpretation?

The number is ambiguous to interpret. NPS is a qualitative metric. Just like the quality of workforce matters more than just the number of employees, the quality of NPS feedback matters more than the score itself. [Read: Why Your NPS Score is Irrelevant]

For example, let’s say your business had an NPS score of 60 previous year, which increased to 65 this year. Now, from a purely statistical viewpoint, it looks like you have a net 10% YoY increase, which is great.

But, since the NPS score is derived by subtracting two variable entities, it’s possible that the score does not exactly represent a positive boost in sentiment. For instance, what if you had 50 promoters, 0 detractors and 50 passives last year, but now you have 75 promoters, 20 detractors and 5 passives? The number alone provides absolutely no answers.

To address this limitation, many companies now ask a follow-up question after they capture the NPS feedback score, for example, “Please tell a little bit more about why have you chosen this score?”

It’s a survey of emotions. NPS is a lagging indicator of your brand’s referral propensity, calculating how many users are likely to refer your brand, instead of how many users actually referred your brand.

Since NPS measures the inclination of customers to refer, experts find it hard to believe that there’s an accurate correlation between the customer’s intentions and actions.

But the point of deploying an NPS framework was never to gauge your brand’s referral propensity (you’re much better off implementing an actual referral strategy), but to proactively elicit key insights from customers by asking for feedback.

Why implement NPS?

It’s one of the first questions that crosses the mind of a senior manager, business executive or startup founder, when they think about adapting NPS.

What knowledge-execution gaps would the survey fill? Would the business unlock enough value by adopting the new framework? And most importantly – do the long-term benefits of adopting the new framework compensate for the implementation tradeoffs?

  • Less price-sensitive customers: Your brand promoters want to see you win. They have a genuine appreciation for your products and are willing to pay more, allowing you to achieve higher profit margins.
  • Higher earning per customer:Promoters also spend more on products/services compared to an average customer, making upselling and cross-selling easier. As they stick with the brand for a longer duration, they provide recurring revenue.
  • Lower operational costs: Brand promoters have high tolerance for problems and complain less frequently, thereby reducing support costs. They also mitigate customer acquisition costs through positive word-of-mouth recommendations.
  • Reduced churn: As you can proactively reach out to passives or detractors before they switch to a competitor, improving your NPS score can have a massive impact on your churn rate.
  • Strongly motivated team: Improving your NPS score can link purpose with profits, delivering customer happiness and aligning employees towards a common organizational goal.
The benefits of Net Promoter Score
The benefits of Net Promoter Score

Measure your Net Promoter Score

Do you know your business’ Net Promoter Score and how likely your existing customers are to recommend you to their friends and colleagues? If you’re ready to get started with NPS, we’d love for you to give Retently a try. We’ve spent a lot of time designing and building the easiest NPS survey product out there. We know you will love it!

Retently also has a program that gives startups the possibility to claim a free Premium subscription if certain criteria are met.

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