You may have heard of it but just exactly what is the Net Promoter Score and why is everyone talking about it? This is an introduction to this widely used customer feedback metric and how you can use it to drive your business.
Calculating the Net Promoter Score
To calculate the NPS® of a company you first need to add a specific question to your customer feedback survey. That question is:
“On a scale from 0 to 10, how likely would you be to recommend our company to a friend or colleague?”
The response is scored on an 11 point scale from Very Unlikely (0) to Very Likely (10).
Once you have the results to that question you need to convert them into the score in the following way:
- Anyone that gave you a 0-6 score is termed a Detractor;
- Anyone that gave you 7 or 8 is termed a Neutral; and
- Anyone that gave you a 9 or 10 is termed a Promoter
Then the NPS = % of Promoters – % of Detractors or put another way…
Where did it come from?
This is probably not like any other customer satisfaction score you have seen. So where did it come from?
The scoring methodology was first widely presented in a Harvard Business Review article titled: The One Number You Need to Grow in December 2003. The author of the article, Fred Reichheld, is well known in the customer loyalty industry and had performed some unique research.
He really wanted to find out if one question could be used to predict a customer’s loyalty. So he researched it. He asked tens of thousands of customers lots of different questions and then cross referenced their loyalty using actual purchasing data.
By testing different approaches, empirically, he discovered that NPS was most often the best indicator of customer loyalty.
This is quite a feat. Until that time organisations had been using “customer satisfaction” or complex calculations of several different variables to try to predict loyalty. In general customer satisfaction was found to be a quite poor predictor of customer loyalty. The other approach, complex calculations, was found to be accurate but difficult to implement and understand.
In identifying the simple Net Promoter Score approach Reichheld had identified an easy to use metric that actually worked.
That is not to say that there is not without its critics. There are a number of academics and other people in the industry that do not believe that NPS works as well as Reichheld indicates.
See this blog post for a summary of the NPS for and against research.
How do you use it?
Because the approach is seemingly so simply, just one question, many organisations that start to use it have just added the “would recommend” question to their existing surveys. This is a mistake and does not work.
The Net Promoter Score is an indicator of customer loyalty but measuring the score does not change it. I liken it to a car speedometer; it tells you how fast you are going but if you don’t have access to the brakes or accelerator you can’t do anything about it.
So, just collecting the score is a waste of time.
When you implement Net Promoter you need to collect just the score and also the reasons for the score. You can do this in several ways; qualitative feedback, additional scored questions, tagging of responses, etc. However you do it, the why part of the feedback is essential to your success.
Why it is good
There two main reasons that this approach is good.
- It is easy to understand: the fundamental question is very easy to understand and explain. In general, people “get it” quickly. They understand why the question works without needing a degree in advanced statistics.
- It predicts the future: analysis shows that company with an increasing NPS relative to their competitors generally increase their revenue and rate of growth. In that way it is a good predictor of future revenue. Knowing that you can use it to determine exactly where you should invest to improve the score, and future revenue.
If you want a simple presentation that you can use within your organisation to explain Net Promoter just download the free introduction presentation below. It provides more information and some easy to use graphics that will help everyone to understand it.
Reichheld, with his co-author Rob Markey, subsequently wrote a book about Net Promoter: The Ultimate Question 2.0 (Revised and Expanded Edition): How Net Promoter Companies Thrive in a Customer-Driven World
If you have any questions please just pose them in the comments below and I’ll be happy to answer them.