Everything You Need to Know About NPS

November 11, 2022 in Business

Everything You Need to Know About NPS

A cartoon woman leaving a review

As of 2021, there were an estimated 333 million businesses in existence worldwide. Whether they’re a large corporation or a local business serving their community, there is one thing that these companies should have in common: a drive to improve customer satisfaction.

Any CEO who understands what’s good for their business will agree that their two most important assets are their customers and employees. Finding a way for leaders to measure how customers feel after visiting a store and interacting with their employees and whether this is positively affecting overall profits can only be a good thing.

A popular approach for learning this information is to measure Net Promoter Score, or NPS. If you want to understand how it works, we’re here to help. Read on to learn everything you need to know about NPS.

What is NPS?

NPS, otherwise known as Net Promoter Score, is a metric that measures customer loyalty, which is essential to the long-term success of a business.

The term ‘Promoter’ refers to an individual who highly values a brand or business they have visited. It makes sense to assume that if a customer enjoys visiting a particular business and values its services or products, then they’re more likely to visit them again. This is the ideal situation for any company, leading to regular revenue, customer loyalty and brand advocacy.

NPS reviews were originated by Fred Reichheld and his team at Bain & Company, who interviewed thousands of people from different market sectors to learn about their loyalty to particular businesses. The results of these questions revealed that a good NPS score directly correlated to high levels of growth within a company, which has led to this review system being adopted by businesses worldwide.

 

graphic image with cartoon people taking part in several web search and branding activities

How Does NPS Work?

To use NPS within your business, you need to set up a two-minute questionnaire that will ask your customers one question – something that helps you understand how likely each customer would be to promote your brand to their family and friends. A common example of an NPS question would be “On a scale of 0-10, how likely is it that you would recommend our company/product/service to a friend or colleague?”.

There are several different methods you can try to share a link to your NPS questionnaire. One common option is to encourage purchasing customers to respond using a printed section at the bottom of a receipt, with either an email being provided or a URL leading to a webpage where the questionnaire is hosted.

Anyone who views your NPS questionnaire will be able to provide a score between 0-10, without the opportunity to provide any other feedback or comments. Depending on the score they submit, every customer will be placed into one of the following three categories:

  1. Promoters – Anyone who provides a score of either 9 or 10 is classed as a promoter, meaning that they’re more likely to spend more money at your store, be a loyal customer and recommend your business to their family and friends.
  2. Passives – Those who score between 7-8 are referred to as passive, meaning that they’re currently satisfied but could be tempted to switch to one of your competitors.
  3. Detractors – Scores that are 6 or lower are known as detractors, which refer to customers who are dissatisfied with their experience and are therefore more likely to respond negatively when your brand is name-dropped.

Net promoter score graphic showing detractors, passives and promoters.

How is NPS Calculated?

If you want to calculate your Net Promoter Score, you need to remove all passive scores and then subtract the detractor score from the promoter score. This should leave you with an overall score of between 100 and -100, which can be instrumental in understanding how your business is performing.

NPS reviews are incredibly streamlined, only taking a short amount of time for individuals to complete and return to a business. Before Net Promoter Scores, anyone looking to discover a company’s levels of customer satisfaction would have had to share customer satisfaction surveys, which were long in comparison and more likely to be ignored or left incomplete by customers.

Asking customers to provide a Net Promoter Score is so effective because they’re much more likely to want to provide feedback if they’ve had a notably good or bad experience. Therefore, receiving average scores is less common, focusing on stronger opinions which are easier to act on.

Photo showing a happy customer handing her payment card to a store employee.

What is a Good NPS Score?

A good NPS score will be different for each company. However, the common answer is that any NPS score above 0 is good, a score above 20 is great and any business with a score above 50 is offering a particularly strong customer experience. In fact, if your business’ NPS score is above 80, it means you’re in the top percentile of companies worldwide for this metric.

However, falling into the trap of solely relying on your NPS score to judge customer experience is dangerous. No feedback is provided when a customer leaves a score, meaning that you need to look at other data that supports your customer satisfaction levels to make the most of whichever Net Promoter Score you receive.

To get the best out of this feedback, business owners need to focus less on the score itself and instead look at how it’s trending upwards or downwards. When looking at your NPS score moving up and down it’s important to compare this data with how the business is performing financially.

Any negative scores that your customers provide could be down to several factors. Issues that could provoke negative responses include employee actions, pricing or the principles, processes and morals that the company is built on. Essentially, if you’re looking to begin measuring the quality of your services and brand experience, NPS feedback is a good starting point for identifying that improvement is needed.

One common way that businesses aim to improve their Net Promoter Score is by empowering their employees to overcome any issues and focus on satisfying every customer, as these 1-to-1 interactions can regularly create stronger levels of customer engagement.

The overall goal of improving your business’ NPS is to build upon the existing loyalty of your customers, leading to more individuals becoming promoters of your brand. Reaching this level of customer satisfaction naturally increases the reach and growth of your business and could eventually lead to a reduction in the cost you spend on salespeople.

Graphic showing several cartoon figures cimbing up a bar chart to higher success.

What are the Limitations of NPS?

The main limitation of NPS is the metric itself. Due to the specific issues detailed below, a brand’s Net Promoter Score only identifies problems without providing any context or solutions. This reduces the opportunities that a company has to improve every aspect of the customer experience, making the overall process less effective.

Limited Context

The scoring system within NPS is very basic and therefore doesn’t provide any context for how business owners can improve their standards to provide a better customer experience. The score that a customer gives for your services is just a momentary reaction, without any real explanation for why the score may be high, average or low.

There is no indication of customer loyalty or what needs to be changed, only a single dimension of customer experience. This means there’s no feedback from arguably the greatest opportunity: those that didn’t buy. Focusing on this could leave your business with more problems than solutions, especially if your NPS average is lower than expected, as it can be challenging to diagnose and remedy problem areas.

Delays

The format of NPS can also be affected by delays in customers submitting their feedback. Typically, a customer won’t complete the review immediately after making a purchase, meaning that recall is compromised by the time elapsed. Thinking back to a prior moment in time will almost always create a different response than a score submitted at the point of purchase, affecting the legitimacy of the response.

Sample Size

Another issue regarding the format of NPS is the small sample size of customers willing to provide their feedback. If the link to provide feedback is provided on a receipt, an average of only 12.4% of paying customers will complete the process of reviewing their experience. This leads to your NPS respondents only representing a small portion of your overall market, meaning that you’re losing out on a majority share of audience feedback.

No Customer Listening

Possibly the biggest issue with solely relying on your Net Promoter Score to measure customer satisfaction is that it erases the greatest opportunity available to a business, which is to speak to individuals who considered a selection of products but ended up leaving without making a purchase. Any business that truly wants to expand needs to pay attention to where they’re failing to generate revenue, rather than just focusing on maintaining the areas that are already successful.

Photo showing several people walking in and out of a shopping mall.

Final Thoughts

Using NPS can improve the ways that businesses interact and serve their customers, leading to greater satisfaction levels and improved customer retention. However, using it exclusively is a mistake, so if you’re considering tracking your Net Promoter Score, you should do so alongside the usage of other tools and services.

Included amongst the other options available to a company are focus groups, mystery shoppers, back-of-house audits, customer intercepts, and reviews of your hiring process. The end goal of combining NPS tracking with these tactics should be to become more proactive and measure leading indicators, which could include targeted value propositions and training employees in the right ways.

If you’re looking to begin all of these processes and improve your company’s customer satisfaction rates, contact Service Evaluation Concepts today. Our solution analyzes, quantifies and reports on specific interactions in unique businesses. We can support you in providing greater value at every stage of the customer journey, based on actionable insights that matter.

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