Net Promoter Score
Learn about a great metric for assessing customer loyalty for a company's products or services.
NPS is a widely known approach that is considered the gold standard customer experience metric. Bain and Company designed this method in 2003. Now it is rather popular in the product management environment and used by various businesses to measure and track how their clients perceive them.
What does net promoter score mean? What is NPS in the survey? How is NPS calculated? Now we’re gonna figure this out!
What is the Net Promoter Score?
Let’s start with the general NPS definition.
Net Promoter Score (NPS) is a special technique that allows determining the degree of consumer interest in a particular product or service. In other words, it measures the loyalty of customers to a company. The method is actively used in many metrics such as Product/Market Fit and others.
NPS is an index ranging from -100 to 100. It measures the willingness of your customers to recommend your products/services to other people.
According to this approach, consumers have the real willingness to:
- recommend the product/service to other people.
- make a repeat purchase/order.
- evaluate the quality of work (or cooperation) with the company.
It means that the Net Promoter Score calculation system helps product managers and marketers to understand how their product is perceived by users and how to improve this perception to reach better business results.
What is the principle of NPS?
The key principle of the metric is quite simple: it is based on a customer survey, consisting of several questions about the user’s attitude to a certain product.
An example of the key question of this survey is “Would you like to recommend our product to your colleagues or friends?” The answer to this question is presented in the form of a ten-point scale, which is necessary for some further manipulations with the survey’s results.
Relational and Transactional Net Promoter Score
What is the difference between the relational NPS and the transactional NPS?
- The relational NPS involves surveying customers to gauge their overall perception of the company in general. It is aimed to show overall loyalty and satisfaction. It engages clients independent of a transaction experience, providing a deeper understanding of their sentiment towards the brand.
- The transactional NPS is intended to instead measure the client’s satisfaction after a certain event or at a specific stage of engagement. This survey is basically focused only on that specific event and the client’s NPS rating at the time of the event. It should also be measured on an ongoing basis.
Why and when to use relational and transactional NPS
When you apply the relational NPS, your main goal should be to understand the overall perception of the business and customer loyalty.
Relational Net Promoter Score looks also appropriate for benchmarking against competitive NPS scores as well as for targeting low and non-returning clients. Remember that it must be continuously measured for a more accurate reading of the overall product’s health.
Transactional Net Promoter Score looks good for defining specific strengths and weaknesses of individual customer interactions.
Why is NPS important? The benefits of the Net Promoter Score method are essential, so let’s define the most evident of them:
1. Accelerating customer satisfaction
NPS calculation allows you to see directly how satisfied your clients are with the product/service you offer. Every company wants as many of its clients as possible to be happy and NPS gives a chance to measure this effectively.
2. Evaluating customer loyalty
The method goes past just measuring customer satisfaction. It helps to define how many of these customers are loyal to the product or brand. Remember that satisfaction is nothing if your clients are not coming back, so NPS is the best way to identify true customer happiness.
3. Creating more advocates
Customer advocates are people who come with customer loyalty. They are constantly recommending you to their peers and friends. NPS can provide you with a clear idea of how to boost the number of customer advocates.
4. Reducing customer churn rate
Focus on how to reduce customer churn is also a critical point. Logically, promoters are much less likely to churn but knowing your NPS means you can invest more into building an effective customer experience.
5. Providing growth
Every company strives to achieve sustainable business growth. The permanent feedback that NPS provides is exactly what sets us up to achieve this.
What are good and bad NPS scores?
In general, the NPS that is below 0 indicates a lot of issues that your business has, and these issues must be addressed.
If you face a score between 0 and 30, then this is a good range, however, there is still room for progress.
In case your Net Promoter Score is higher than 30, it indicates that your company is doing great and has far more happy clients than unhappy ones.
The NPS score meaning over 70 is a win as it means that your target audience loves you and your business is generating a lot of positive word-of-mouth from their referrals.
Finding yourself below 0 may discourage and it should definitely ring a bell as to the provided customer experience. So, you should be concentrating on keeping your score above 0.
NPS Calculation: How Does it Work?
Respondents should rate between 0 (not at all likely) and 10 (extremely likely). Depending on their response, clients are being divided to one of 3 categories:
- Promoters give a score of 9-10. They are typically loyal and enthusiastic.
- Passives give a score of 7-8. They can be satisfied enough with a product/ service but not happy to be considered promoters.
- Detractors give a score of 0-6. They are usually unhappy and unlikely to buy from you again. Moreover, these customers can even discourage other people from buying from you.
How to create an NPS survey and collect NPS feedback?
It is quite easy to create NPS surveys and available free templates actually mean the work is done for you. However, you should care about the long-term data use when deciding how to administer them.
Survey software solutions may help but you will be limited with the ability to take action on the results as they only measure one metric. Customer experience management tools will be more helpful because they will let you keep track of all the interactions your organization has with clients.
NPS data will help you to recognize the touchpoints with high NPS scores and with lower scores.
Here are the questions you should ask in the NPS survey:
- The demographic question (age, gender, income, etc.) will be useful when creating segmentation during your research and analysis.
- The question about net promoter score – the primary way you measure your score.
- The question about the score reason will help you to ask clients about their primary reason for giving the numerical score in the previous question. This will help to identify the drivers for promoters and detractors in your responses.
- The question about the ways for making your experience better will help you to ask the respondents to suggest what you can do to improve their experience.
Interpreting Net Promoter Score
As you already know, NPS is always expressed as a number from -100 to 100. When a company has more detractors than promoters – the score is negative; when the situation is opposite – the score is positive.
In the NPS system, average scores vary between spheres and industries. Knowing Net Promoter Systems averages by industry will help you to better understand how the core competitors in a specific market are doing and will provide you with extra context to what considers as a good or bad score.
What about reading your NPS results?
NPS helps you to see troubles coming both at the individual and macro customer level.
After running the survey and collecting data, you may read your NPS results in the following way:
1. Considering data segments
The NPS of your organization may vary across different segments (for example, gender, age, long-term customers, higher-spending customers, etc.). You do not need such a level of depth when you’re just getting started with NPS score calculation. But when you become a more advanced user, you will be able to improve your NPS analysis by putting segmentation systems in place.
2. Tracking performance over time
You may look at the NPS daily as it is a real-time metric. However, its power will be revealed over time when you can see trends and fluctuations. Once you have an understanding of how Net Promoter Score changes over time, you can explore what factors may have contributed to it.
3. Closing the loop with clients
The real luck is when you collect the info by asking follow-up questions as part of the survey. To succeed, you should have an appropriate methodology for interpreting your NPS score. Additionally, you should always close the loop with clients to understand the context and reasons behind their scores.
Practice special follow-up sessions and one-to-one interviews to zoom in on specific issues and understand what should be improved.
NPS is aimed to measure the organization’s customer base loyalty with a score from -100 to +100. It comes from clients answering the question “How likely are you to recommend this business to your peers?”
If you want your business to flourish, you need satisfied customers (promoters) who will talk about you enthusiastically and send referrals on your way (this is about checking how many people scored you 9-10 in an NPS survey).
Net Promoter Score is a useful number for evaluating your business success. Remember that customer satisfaction is key to getting new customers and securing old ones.