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The ultimate guide to NPS
A constantly updating guide to all things Net Promoter Score

"The ultimate survey question." "The only question you need." A ton of hype surrounds the Net Promoter Score question. It's a question that's heralded as the gold standard for customer experience for more than a decade and for good reason. It's a simple way to check the pulse of your business' growth and customer loyalty.

But what exactly is an NPS score, why is it the gold standard and how do I find mine? All will be explained shortly young customer loyalty Padawan. 

The history of Net Promoter Score

Net Promoter Score was first introduced by Fredrick Reichheld in the Harvard Business Review in 2002. You can read his entire article here, but the gist is he got the idea from a presentation done by Enterprise, the car rental company.

They explained how they received exponential market growth by sending out and anylyzing monthly customer surveys with only two questions. One question was about the quality of their experience and the other about how likely they would rent from Enterprise again. 

Reichheld and all the CEOs in the room were surprised by this. How can you track a company's growth with only two questions?

This was back in the day when surveys were dozens of questions, intimidating to participants and frequently incomplete. Enterprise's approach was lean, accurate and fast. 

The other major difference is how they analyzed the data. Enterprise only paid attention to customers who gave the highest possible rating. The reasoning behind this was to concentrate all efforts on key customers: Those who not only make repeat purchases but those who are most likely to recommend Enterprise to others.

Reichheld wanted to know if other industries could benefit from finding loyal customers and if they also correlated with business growth. He also wanted to know if he could further simplify this survey down to a single question.

He worked with a research firm, Satmetrix Systems, for over two years to conduct surveys about major brands and compare the results against the respondent's actual spending habits. They compared multiple questions  to figure out which one correlated to an increase in spending in the participant and growth in the company in question.

One question was synonomous with growth for almost every industry was, "How likely is it that you would recommend [company X] to a friend or colleague?" They categorized customers on a 10 point scale (10 being extremely likely and 0 not very likely) ended up being detractors if rated between 0-6, neutral 7-8 and promotors at 9-10. 

Reichheld would subtract the percentage of detractors from the promoters to find how many people were promoting the company and how that related to known growth data. The results were accurate across most industries. 

 

You can see how old this data is (Remember EarthLink?), but the principal still holds true.

His report sent shockwaves through the industry. Suddenly having a great product and great customer service wasn't the focus for these companies, instead, it became fostering customer loyalty.

He noted this doesn't work for all industries. Loyalty doesn't always mean growth for the computer software industry, banking institutions and companies who can be considered monopolies. People can hate these companies and due to outside circumstances, they can still be profitable. (Like the much hated Comcast)

Ever since the Net Promotor Score has become a standard in the industry for measuring the health of a company.

How to calculate NPS

To make an NPS survey just ask the question, "How likely are you to recommend [our company] to a friend or colleague?" Ask customers to rate their likeliness 0 to 10. 0 being not likely at all and 10 being extremely likely.  

Let the responses roll in.

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When creating the Net Promotor Score, Reichheld wanted the mathematical formula to be easily understandable by nearly anyone. All you have to do is subtract the percentage of detractors from the number of promoters. This means if you end up with a negative score you did the calculations right, your business just might be in trouble.

Detractors are categorized by anyone who rated their likeliness to recommend in the 0-6 range. Promoters rated  9-10 and neutrals rated 7-8, but we don't care about them anyway. 

Let's say for example you have 4,300 responses to an NPS survey. You've figured out 1,100 are detractors and 2,450 are promoters. Find the percentage of detractors (25.58%) and promoters (56.97%)

Then subtract 56.97 - 25.58 and you have 31.39.

Any score above 0 is considered good, while anything above 50 is considered excellent. A negative score means you need to make some changes to your business as it is most likely shrinking.

If your score is 31.39, congratulations! You have an excellent promoter score and your business is growing!

The benefits and value of NPS

Net Promotor Score changed the surveying landscape. Before NPS, customer surveys were long, boring and hard to gather valuable data from. (Although some businesses still insist, or simply don't care, on having long, boring surveys)  

NPS gives busy business and teams an easily obtainable goal to shoot for. When the customer loyalty goes up, the company will also grow. Sure there is a lot more nuance to the health and profitability of a business than a simple number meaning good or bad, but distilling down the essence of a successful business takes times and work. For a lot of companies, these resources can be better spent elsewhere.

NPS works on the belief that loyal customers lead to business growth.

While NPS isn't a direct measurement of growth, it's a great way to see how many of your customers are loyal. You may be able to see how often customers make purchases using smart POS systems or other forms of tracking, but these frequent buyers could be repeat customers and not loyal customers.  

Repeat customers may frequent your business out of necessity or value. Say you're the only pizza place within five minutes of an unloyal customer's house. If competition opens up closer to the customer, that customer will probably leave. Although if the customer had wonderful experiences at your pizza shop, enough to tell their friends and colleges, they presumably wouldn't leave.  

Loyal customers will spend over 10 times more over their lifetime than regular customers and they account for 84% of total visits. It's not only steady business, it's more business.

More importantly, these are customers who say they will promote your business to other people. Even if they don't find a need for your services anymore, they will still continue referring people to you. For example, a customer may have a loyalty to Toyota, but moves to a higher income bracket and starts buying more luxury cars. They won't buy from Toyota anymore, but they'll recommend them to a niece or nephew. 

Loyal customers are simply more valuable than repeat customers in the long run.

Criticism of Net Promotor Score 

As with anything massive enough to shake up an industry, there is a lot of criticism against Net Promotor Score. Here are a few common complaints about the survey industry's leading question. 

It fails to predict customer behavior

Just because someone says they will tell their friends and family about your service or product, doesn't mean they actually will.

Someone who leaves a rating of 10 may not actually evangelize to anyone else. The same goes for your detractors. 

Personally, I've bought a few products off of Amazon that I found "life changing." I would give some of them a great review, but I just have so many other things I want to do in life and not enough time.

Fails to provide actionable data

NPS is a great thermometer for finding out the health of a business but, just like a real thermometer, it doesn't do much more than that. For example, the conference room at SurveyMe’s office is 82 degrees, but is it because someone (Amber most likely) turned off the air conditioner or because the sun is poking through the windows?

This is easy to discover if you're in the room where the problem is occurring. However, if you're judging your business’ health off of a number from a survey, you need to obtain more information to get the whole picture and make your survey results actionable. 

Luckily there's an easy way to solve this. The best way to follow up an NPS survey question is with an open-ended question asking the participant why they rated the way they did. Try using the question, “What’s one thing we can do to improve our business?” 

Despite these criticisms, it's hard to deny the power and the simplicity of the Net Promotor Score question

Try as marketing research teams might, there still isn't quite yet a single question as powerful as NPS. Anytime one of your clients doesn't know what questions to ask on their survey (we have a whole Ebook for them here) we direct them to the working.

There's no better way to get a temperature read on your business health than an NPS question.