While most brands are obsessed with acquisition to boost their growth rate and revenue, it’s important to realize that acquiring customers without retaining them is like fishing with an open net. It may feel like you’re onto something, but the end result is always a net zero.
Customer retention isn’t the goal; brand loyalty is. The issue with brand loyalty and customer satisfaction is that it’s tricky to measure. Unlike revenue or growth, which are quantitative business metrics, brand loyalty is a qualitative metric. Luckily, there is a framework that can help you assess long-term customer satisfaction and predict brand loyalty using one simple question.
In this article, we dive into the very basics of the Net Promoter Score® – how a single question survey measures customer loyalty and satisfaction, ways you can implement and further run your NPS® campaigns, when is the right time to start using it, how NPS stacks in comparison to other survey frameworks (CSAT, CES, etc.) and which functional areas does it potentially impact.
What is Net Promoter Score: metric evolution
Net Promoter Score (NPS) was conceptualized by Fred Reichheld, Bain & Company and Satmetrix in 2003 as a customer loyalty metric that every business needs to grow. The study was published in Harvard Business Review titled as “One Number You need to Grow”, in which Fred argued that traditional customer satisfaction surveys were insufficient to gain an actual pulse of customer happiness, as they were long, complicated, ambiguous and fetched poor response rate.
He observed that as most customer satisfaction surveys measured transactional responses instead of actual customer experiences, it was almost impossible to establish a correlation between the captured feedback and what the customers actually feel about the brand.
Fred and his team came up with a simplified framework that linked survey responses with actual customer behavior – purchasing patterns and referrals.
Fred insisted on asking customers a single question that gauged the willingness to recommend the brand’s products or services to a friend or colleague (proactive). The cumulative responses to the question were then aggregated to calculate the brand’s Net Promoter Score.
In the apparent paradigm shift, the score itself becomes largely irrelevant. Businesses are less interested in knowing their NPS score, and more interested in using the NPS ecosystem to close the feedback loop, and prevent customer churn.
It has leveled the field for small and big businesses in the age of the customer. Brands now realize that listening to and truly engaging with their customers is the new secret to organizational success.
How to Send an NPS Survey
Net Promoter Score can be termed as an index that measures the customer’s willingness to recommend your brand’s products or services. It’s calculated based on the responses received by asking customers two simple questions:
- “On a scale of 1-10, how likely is it that you would recommend our company/product/service to a friend or colleague?”
- What is the primary reason for your score?
In the next step, you decide on a survey sample and send the survey to customers. NPS surveys are typically sent by email, text messages or taken over phone conversations and in-app popups. Ideally, you would close the loop and process the feedback in less than 24 hours.
After the question has been asked, the individual responses to the question are captured and segmented based on predefined criteria:
- 9-10 – Promoters: They love your company’s products and are likely to refer your brand to potential buyers. They are also repeat-buyers and have high customer lifetime value.
- 7-8 – Passives: They don’t spread any negative word-of-mouth, but would easily switch if they have a better option. While they won’t spread negative word about your brand, they won’t be too enthusiastic to promote it.
- 0-6 – Detractors: They are unhappy with your service and likely to damage your brand reputation with negative word-to-mouth publicity.
Calculating Net Promoter Score (NPS)
Based on segmentation of the individual responses, the Net Promoter Score is calculated by subtracting the percentage of detractors from the percentage of promoters. Here’s the NPS formula:
NPS = (% of Promoters) – (% of Detractors)
The score is a number that ranges from -100 to +100. If you have an NPS score of 100, that essentially means all your customers are brand promoters (best case scenario), while a score of -100 implies that all your customers are detractors (worst case scenario).
Why Net Promoter Score?
In this section, we explore the tangible benefits of implementing NPS over other surveys.
Simple to understand: Net Promoter System is fairly simple to adapt and understand. No need for extensive, complicated research.
Easy to conduct: NPS surveys are short, crisp and quick to answer – which is one of the reasons why they receive a high response rate.
Provides actionable feedback: Unlike traditional CSAT or CES surveys that give out reactive transactional feedback, NPS provides proactive actionable feedback on the overall customer experience.
Identifies target segment: By combining NPS data with user demographics and behavioral data, you get key insights into your target customer segment and understand why they love or hate your product.
Refines product roadmap: Qualitative feedback captured from NPS surveys can be used to identify customer pain points, validate new feature requests and refine the product roadmap.
Prevents customer churn: NPS framework can be a useful tool to proactively reach out to customers that are most likely to churn.
Build the culture of Customer Success: Essentially, it builds a culture of customer success – where every department in your organization is aligned towards delivering favorable outcomes for your customers and fostering long-term business relationships.
Gives Competitive Differentiation: NPS can give a huge competitive edge to your business, as it allows you to act proactively on the captured insights, while your competitors wait for months to get the negative growth indicators.
Scalable and affordable to every business: For some companies it’s not feasible to hire a dedicated Customer Success team from day one, sending out NPS surveys is a low cost, yet effective way to keep a pulse on customer happiness.
Increase Customer Lifetime Value
Only 14 percent of customers leave a company because they feel dissatisfied with its product or service, whereas 68 percent leave because they feel let down by the way they were treated.
The vast majority of unsatisfied customers will never come right out and tell you they’re unsatisfied. They simply leave quietly, and to make matters worse – spread the word about their unpleasant experience with your company. That is why it is essential to constantly engage with your customer base.
By implementing NPS you can: (1) identify customers who are on the edge of leaving, (2) customers who are ready to act as brand advocates for the company, if given the resources and (3) customers who can see some flaws in your product or service, but remain silent. With this valuable information on hand, you can prevent customers from leaving your company or switching to a competitor.
How is NPS being used by businesses
– Growth and retention
- Extensive research has shown that NPS acts as the leading indicator of growth, strongly suggesting that if your NPS is higher than your competitors’, it’s very likely that you would outperform the market and capture a larger market share.
- According to Gartner, 65% of all new business comes from existing customers. Also, it costs five times as much to attract a new customer than to keep an existing one satisfied. As NPS helps you improve customer retention by providing a framework for measuring customer satisfaction, it can have a direct impact on your top-line and bottom-line growth.
- NPS can also be used as an ultimate growth hacking metric to make viral growth sustainable, scalable and economical for your business.
– Product management
- NPS can be used to give stakeholders confidence in the product decisions. Since the decisions are driven by aggregating user feedback, it limits the chances of negative outcomes.
- NPS also allows product managers to realign the product roadmap and team’s priorities on what the customers really need. As the feedback loop gets shortened, it becomes easier to analyze the impact of every incremental update along the product journey.
- Research from Verizon shows that up to 85% of new customers acquired by small businesses are the result of word of mouth. Maintaining a high NPS could trigger the referral flywheel and give you the kind of growth that startups like AirBnB, Dropbox and Uber managed to achieve, without splurging on advertising or marketing campaigns.
- NPS can also be used by marketers to gauge the overall customer sentiment and give feedback to the development team. The setup essentially creates a coherence between multiple departments in your organization and aligns them towards a common goal – delivering customer success.
- Using big data analytics, NPS can be used to create models that could predict customer behaviors and patterns. It could play a pivotal role in improving conversions and building engagement with customers.
– Talent Management (eNPS)
- eNPS is an employee satisfaction index that measures how satisfied or happy the employees are. If you think about the service-profit chain, you realize that employees need to love the company more than their customers to gain a differential competitive advantage. eNPS helps you bridge communication or organizational barriers, letting you capture honest, unbiased feedback.
- eNPS can be used to anonymously capture feedback and streamline the company’s culture. The aggregated feedback can be used to validate new HR policies and gauge the impact of existing policies on employees.
– Overall KPI and management reporting (CXO)
- NPS can become the single customer satisfaction metric that can be tracked on a periodic basis to predict long-term growth and assess previous management decisions. Just like quarterly balance sheets and annual reports, tracking NPS consistently can provide crucial insights to top-level management about long-term growth prospects and current execution strategies.
- NPS can be used as an inclusive KPIs to link profitability with customer satisfaction and retention. For instance, if the board directors want to increase the profit margins, how would that affect customer retention? What are the four biggest reasons for customer happiness? Which target segment is the best for upselling and cross-selling?
- By linking NPS data with financial reports, management can get crucial insights into company’s overall health. For instance, if the profits are increasing, but NPS is on a steady decline, it’s a warning flag for long-term growth. A competitor might take advantage of such a situation by replicating the customer experience at a lower pricing.
When is the right time for NPS?
Getting accurate insights from your NPS campaign is not just about how you ask the questions or which questions you ask – it’s also about understanding when to ask them. Often, the context in which a question is asked and the timing of the survey can have a huge impact on the response rates as well as the feedback score.
So, when is really the right time to ask the ultimate question?
Depending on how you outline your customer journey, there can be multiple interaction points, where the effectiveness and response rate of the survey is high. By effectively leveraging these touchpoints, you can not only capture honest, unbiased feedback, but also improve the statistical significance of your NPS survey.
Here are some of the right moments to pop the question:
Post Free trial: If a customer opts for a free trial, but decides to discontinue as a paying customer, it’s a strong indicator of customer interest, albeit weak product engagement. Why not take the opportunity to solicit their feedback and understand what went wrong?
Exit Survey: Price is an issue only in absence of value. If a customer decides to discontinue the service after using it for a while, you’re doing something wrong (and your competitor is doing something right!). Instead of just letting it happen, why not take the opportunity to re-engage them by requesting feedback? Even if you can’t stop them, you will get crucial insights.
Ongoing Process: The super-steady way to track NPS
Most businesses make the mistake of either surveying all their customers only once or twice a year and don’t expand their sample size steadily to reach every customer. The result? They capture feedback with a high degree of response bias.
The bias can be eliminated by scheduling your NPS surveys throughout the year (weekly, monthly or quarterly), so that you can proactively monitor your customer sentiment and close the feedback loop.
But again, balancing the survey response rate and survey fatigue is the key. You don’t want to piss off your customers by over-surveying them and continuously asking for feedback.
Emails are an excellent choice in that sense, as they’re non-intrusive and can be auto-scheduled to maximize customer participation. You can leverage the best moments to ask the question, depending on your target audience.
For example, MailChimp’s STO statistics suggest that sending emails during the workweek is generally a better strategy than sending emails on weekend. However, you need to be mindful of the time-zone differences, as people are 58% more likely to check emails in the morning than any other part of the day.
NPS Benchmarks and Results: Behind the Numbers
You cannot say a lot about a company just by looking at their NPS score, without considering their relative performance within the industry. For instance, a department store can have a score of NPS of 30 and still be the worst in the industry, while a telecommunication brand with a NPS of 32 can be the market leader.
So, which are the factors that affect NPS benchmarks? How do you know if you have a good score, and when do you know it’s not? Primarily, there are three factors that affect NPS benchmarks:
The prime factor to consider while you’re evaluating your NPS score – how crowded is your industry and how unique are your value propositions?
If you’re in a crowded industry like insurance, banks or healthcare, it’s okay to beat the industrial average or be around it. But if you’re into a niche segment like electric cars or VR headsets, it’s important to ensure you have a high NPS, as it’s a strong leading indicator of how uniquely you are positioned within the industry and how customers perceive your brand.
Tolerance is one of the crucial factors that affects NPS benchmarks, as people are more likely to be opinionated by how much value your product/services delivers to them on a day-to-day basis.
To explain how tolerance level for your business vertical affects your NPS score, consider this: Verizon has a score of 38, which might sound average, it being, however, the highest in the ISP industry. In fact, the competitor companies like AT&T and MediaCom have even lower scores of 15 and -22 respectively.
It’s not because these companies deliver poor services compared to other industries; it’s simply because they’re dealing in a highly competitive industry that has zero tolerance towards service interruption.
Usually you wouldn’t be able to afford upgrading your purchase or switching to a different brand, without taking a financial hit. So, in order to stay consistent with your original conviction, you maintain a strong bias and keep referring the brand.
That’s exactly the kind of problem that SaaS businesses faces. Since SaaS businesses have an inherently low entry and exit barrier, it becomes difficult (and all the more important!) for brands to retain customers and build customer loyalty. That’s also one of the major reasons why NPS scores for most SaaS companies are in the mid-tier range.
What is a good Net Promoter Score?
There isn’t a certain score number to look up to, because it varies from business to business.
Here is an easy way to check and understand if your score is good or not:
- Is it better than your competitors’? If yes, then you have a good score in your industry. But that’s not enough. Read below:
- Is it growing? If we’re assuming that you survey your customers once in 3-6 months, then a good Net Promoter Score is the one that’s higher than the score you received during your previous survey campaign.
- Do your best to keep it above 0. Even though a -50 score might be higher than what your competitors have, finding yourself below zero might be discouraging and this should definitely ring a bell: “your customers are not happy at all”
But remember, NPS score by itself is largely meaningless. While most businesses are obsessed with growing their numbers as high as possible, NPS score is really not a quantifiable metric to merely grow, but a qualitative metric to reflect, analyze and react. That is why businesses need to focus on what the number is telling them, instead of interpreting the number at its face-value.
While NPS aims at being the new standard for measuring customer loyalty and satisfaction, the underlying simplicity of the metric has made it prone to widespread criticisms. From not providing actionable metrics to having high statistical variance, NPS has been criticized for fabricating an inaccurate picture of customer satisfaction.
For instance, experts have pointed out that two companies with same NPS score can have different percentage of detractors, promoters and passives, making the score ambiguous to interpretation. But the truth is that businesses need to focus on what the number is telling them, instead of interpreting the number at its face-value.
Take Typeform for example. They tagged qualitative feedback with NPS score to get actionable insights on how to prevent churn and improve engagement. Since decreasing churn has a direct impact on MRR or revenue, they were able to use NPS insights to foster growth and build brand loyalty. Similarly, data segmentation and buyer personas can be created using NPS data to eliminate cultural bias and improve audience orientation.
While there are claims that NPS is not statistically significant, the truth is that number in itself is irrelevant.
Businesses should rather look at NPS as a feedback or interaction tool that turns unbiased customer feedback into proactive insights for future growth. Of course, like every other growth metric, NPS certainly has its own caveats, but most of them can be overcome through proactive implementation and predetermination of actionable metrics.
Moving Beyond NPS: Delivering Customer Success
Capturing how customers feel about your brand is vital for long-term sustainable growth. While NPS certainly has its own caveats, most of them can be overcome through proactive implementation and predetermination of actionable metrics.
Besides, measuring NPS is no longer about the score itself. It’s the first step towards building a culture of Customer Success, which found widespread recognition among businesses (B2B and B2C) around the world.
Whether you’re a small startup or a big corporation, NPS helps unite everyone in your company around a common purpose. All of the departments can equally impact and improve NPS, which keeps them responsible for overall customer success. So when the score reaches the desirable outcome, it keeps the whole team motivated.
NPS along with other customer engagement analytics is the minimal combination you need for customer success. Let’s take this use case as an example: you received a low score from a detractor, and haven’t received any additional feedback from him. Reaching out to him and asking “what’s the problem and how can you fix it” will not get you any results, because your customer is unhappy, and most likely angry with you. What you should do instead is use other engagement and customer behavior metrics to see what bottlenecks and obstacles the customer had along the way, and then contact the detractor, providing him the solution to the problem he experienced. Chances the customer will engage in conversation are higher than if you were to contact him simply asking why.
What was initially a measurement metric for future growth has now evolved to become a customer engagement tool that allows brands to proactively elicit key insights and optimize product experiences. Companies that fail to focus on being proactive towards their customers would risk extinction, while those that optimize customer experiences by proactively listening to their customers will have the biggest competitive edge possible.
Measure Your Net Promoter Score
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