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 improvements in your business.
Net Promoter Score, or NPS®, is a customer survey question and analysis approach used by companies, large and small, to measure customer experience and predict customer loyalty.
It’s key advantage is that a company’s relative Net Promoter Score versus its competitors is a predictor of future business revenue growth.
To determine the NPS® of a company add the following question to the customer feedback survey:
The response is scored on an 11 point scale from Very Unlikely (0) to Very Likely (10).
To calculate Net Promoter Score, subtract the percentage of 0-6 responses (Detractors), from the percentage of 9 and 10 responses (Promoters) to the “Would Recommend” question in your survey. The 7 and 8 responses (Neutrals) are ignored. The overall score is then between -100 and +100
So, in NPS parlance:
And, NPS = Percentage of Promoters – Percentage of Detractors
Here is the NPS calculation in a formula:
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, was well known in the customer loyalty industry and had performed some unique research.
He wanted to find out if one question could be used to predict a customer’s loyalty. So 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 approach, Reichheld had identified an easy to use metric that actually predicted customer loyalty.
Employee Net Promoter Score®, or eNPS, is seen increasingly often in company reports because it is seen as a way to:
It uses the standard NPS question, just tweaked a little to be focused on the organisation’s employee not it’s products and services.
While the formula to calculate NPS is simple, operationalising it in your business is much more complex. You need to consider:
Market research style survey tools, SurveyMonkey, et. al., are great for one-off surveys but lack the features needed operationalise NPS and drive business success.
A dedicated NPS software platform is a better choice.
Because the approach is seemingly so simply, just one question, many organisations that start to use it have just add the “would recommend” question to their existing surveys believing this is all that is needed. This is a mistake and does not work.
When you implement Net Promoter you need to collect not just the “would recommend” rating but also the reasons for the rating.
You can do this in several ways;
However, you do it, the why part of the feedback is essential to your success.
If you’ve ever done a statistics course (at any level) you will have heard of sampling and confidence intervals. These terms help you to understand how closely the responses you receive, match the overall population.
Unfortunately, because NPS is a net score (remember, Promoters – Detractors) the calculations are a bit different to those we do on other survey data.
Those calculations are not difficult but the concepts need a little explaining. Grab one of the resources to the side for a detailed explanation or download the spreadsheet which has the calculations already done for you.
It’s common for companies to wonder how good their score is.
In practice this is a very difficult question to answer because so many factors can affect the score.
So external benchmarks can be difficult to find and apply to your specific business.
On the other hand internal benchmarks are very effective. In this case a good Net Promoter Score is one that is better than you had last quarter, month, year.
“Good” is any score that is continuously improving.
For the last 5 years, at the start of every company wide roll-out, we ask the senior executives (typically CEO and direct reports) a very important question:
You about to invest substantial resources and time in rolling out Net Promoter. Why?
Here are the top six reasons CEOs give for using Net Promoter Score:
Explaining the scoring system to people is very simple and takes only a few minutes. Also, staff typically “get it” very quickly. It makes intuitive sense.
It is possible to create more predictive scores on an organisation by organisation basis by using advanced statistical analysis and modelling techniques. The problem with these approaches is they are difficult for people to understand and act on.
By far the most important benefit of NPS is that it predicts customer loyalty and therefor future revenue for the company in question.
In general, if you score goes up, so will your revenue. If your score goes down, so will your revenue.
This chart is a little complex, but it clearly shows that the organisations with the highest score have the highest revenue growth.
From a business perspective this is very important because it means that if you can lift your score, your business will grow more quickly.
The ability to predict customer loyalty means that this score can often be directly related to the value of a customer.
In fact, research across several industries have shown that there is a powerful connection between the Detractor/Neutral/Promoter status of a customer and their value to the business.
In this research Bain Consulting identifies that a Promoter is typically worth between 1.3 and 4.6 times as much as Detractors.
Other research by The Tempkin Group shows that Promoters are almost 6 times more likely to forgive a company if it makes a mistake and more than 5 times as likely to purchase again from the same company.
Our own research in the insurance industry shows that
So the economic impact of understanding the NPS for your business and driving improvements can be substantial.
Just like any system, there are proponents and detractors for the use of the score. As a high profile system it has been researched substantially and much of the work published.
There are several common alternatives to NPS. While new alternatives are announced on a regular basis, these are only two that are in common use.
Research in the article showed this measure was correlated with future revenue.
Recently, the wording of the CES question has been changed and this version termed CES 2.0
Customer Satisfaction has been used in customer feedback surveys for decades. The question is worded thus:
The key downside of Customer Satisfaction is its lack of predictive power. Generally satisfied customers don’t often behave much differently to generally dissatisfied customers. To overcome this issue, proponents recommend using the “top 2 box” results.
But, overall, there are 5 stages to properly launch Net Promoter Score in a business.
For a detailed description of the process you can download our Business Leaders’ Practical Guide to Implementing Net Promoter.
The Initiate Phase is about confirming senior management buy in and creating the company structures that you need to drive change. In this phase you design the corporate governance structure that you will need.
Typically, you will need a couple of groups (Steering Committee and Process Team) to ensure the process continues long after it is launched. Each of these groups needs to understand their role in the process.
Change management is another key element of the Initiate phase. To be successful long term, you need to anticipate staff concerns and actively communicate the impact of the change on and to each staff member.
In this phase you will analyse your customer journey to design your data collection process:
Now you’re able to design your data collection survey and start collecting data.
It seems odd to design the survey at this point, half way through the launch, but it is only at this stage that you have all the information you need to properly design the survey and data collection process.
You also need to launch your Service Recovery process at this point. The impact on customer loyalty of contacting them after a poor score on a survey can be profound and you need to make that contact happen as soon as possible.
Service recovery is the process by which organizations react to and recover from a poor customer experience. Initiation of service recovery typically originates from direct customer complaints, social media messages, customer surveys and employee insights.
When implementing Net Promoter, service recovery is one of the first things to you should tackle because it has an amazing impact on your NPS and customer loyalty.
In our research (Research: 6 Key Drivers of Successful Customer Feedback Programs) we identified that organisations which implemented service recovery as part of their customer feedback process had a more successful overall process.
CustomerGauge has identified that organizations which act quickly on service recovery gain an average of 10 points of Net Promoter Score.
It’s also simple to implement and will drive customer focused change management in your organisation.
If you have designed the process effectively, within a few days you should have some initial insights into what you can change in the business to improve customer loyalty.
These first items should be quick and easy to implement so you can show some quick wins to the rest of the organisation.
With the process validated, and proof that it works, you can move on to larger opportunities.
As NPS is important indicator of customer loyalty it is natural to want to set company, team and staff KPIs for its achievement and this is a very common practice.
However, great care must be taken in the design and implementation of KPIs that rely on this measure as it is very easy to create a system that creates perverse incentives to lift the score while not improving business performance. This is called Score Begging or NPS gaming and is very common.
Given the negative impact this can have, it can be argued that front line staff should not have this type of KPI at all.
If KPIs are to be used here are some practical tips on how to succeed:
To use NPS you add the Would Recommend question as the, typically, first question in your customer feedback survey.
Then there are two ways to collect the data.
Relationship NPS surveys are performed on a regular basis, say every 6 or 12 months. They measure your organisation’s overall score.
Transactional surveys occur after a customer has been through a transaction with your business. It could be a sale, business process or customer service interaction.