Net Promoter Score for Measuring Customer Loyalty and Future Business Growth

  • 07/10/16

Net Promoter Score for Measuring Customer Loyalty and Future Business Growth

What if you could predict your business’s growth just by asking your customers one question?

That’s the promise of the Net Promoter Score (NPS).

Gauging Customer Satisfaction (or the Lack of It)

For over a hundred years, smart businesses have done all they could to learn how happy (or not) their customers were. They conducted customer satisfaction surveys by calling them, mailing them paper surveys, and asking them face-to-face. The Internet makes asking customers for their opinions easy. The elearning site Udemy includes multiple customer surveys in all their courses.

Problems with Customer Surveys

However, all these methods come with problems. Ironically, they risk irritating or angering customers. Not many fill out and mail back paper surveys. Telephone surveys make you come across as a telemarketer. In-person interviews take up their time. Online surveys avoid most of those problems, but completing them is not what your customer wants to do online.

However, traditionally, knowing how important it was to understand their customers, companies have persevered and collected as much information as possible. However, asking customers to stop and think about every aspect of the transaction just made the process more complex. How did they rate the customer service? The company logo? The product’s performance? The salesperson’s friendliness? Were the bathrooms clean? Many times the questions confused customers.

The Beginnings of Net Promoter Score

According to its originator, Fred Reichheld, Net Promoter Score began at a high-level meeting of executives from many of the most successful companies of the day. Andy Taylor, CEO of Enterprise-Rent-A-Car, shocked the others by explaining how Enterprise asked customers only two simple questions. Did they have a good rental experience? And how likely were they to use Enterprise again?

Enterprise used the results to rank its various branches. However, Taylor said something else that surprised the others. He told them Enterprise counted only the number of customers who gave the highest rankings. Shouldn’t he use an overall average or median score? No, he told the others. The happiest customers counted the most, and only the happiest customers.

Inspired to take Enterprise’s system a step further, Reichheld wondered whether a customer survey could consist of just one question, making the process as easy as possible for customers, and easy for the company to deal with.

Two Years of Testing Later . . .

Reichheld determined the one question to ask customers to obtain the best predictor of future growth and success was:

“How likely is it you would recommend our company/product/service to a friend or colleague?”

They rate that likelihood on a scale from 0 to 10. According to their answer, the system classifies them as:

  • 9-10 – Promoters
  • 7-8 – Passives
  • 0-6 – Detractors

How to Calculate Your Net Promoter Score

Compile the results. Take the number of Promoters expressed as a percentage, then subtract the percentage of Detractors. Ignore the Passives.

For example, if 54% of survey respondents said they were 9 or 10 likely to recommend you and 25% put down 0-6, the calculation would look like:

54 – 25 = 29

Your NPS is 29.

If your Detractors outnumber your Promoters, your score will be negative.

The full range of possible scores is -100 (all your customers are Detractors) to 100 (all your customers are Promoters).

Obviously, no company is perfect, and the higher your score, the better.

Net Promoter Score and Your Company’s Growth Prospects

According Reichheld and other advocates for NPS, your NPS helps to predict your company’s growth into the future. As he writes in his original article, having lots of customers who recommend you isn’t the only driver of growth, but without it you can’t grow.

More than 2/3 of the Fortune 1000 use NPS. Companies using NPS include Siemens, American Express, Philips, G.E. and Intuit. Slack used NPS to become a billion dollar company in just one year.

Recently the Temkin Group released the results of a survey they did of over 10,000 consumers in the United States, covering 291 companies in 20 industries. They found a high correlation between a high NPS score and the likelihood customers would buy more from that company.

On average, Promoters recommend companies to 3.5 people.

Closing the Loop

Your Net Promoter Score doesn’t, and shouldn’t, remain static. One important part of using the metric is to “close the loop.” That is, reach out to your Detractors to learn why they wouldn’t recommend you.

In fact, this portion of the NPS helps cause your company’s future growth. If you contact every less than fully satisfied customer you:

  • Impress them with your concern for their opinion and your speedy response
  • Straighten out any misunderstandings
  • Correct and make right any problems they suffered
  • Fix other problems you discover with your company, its procedures, its employees or its products. Maybe the customer has a legitimate complaint. By learning about it, you correct the problem so it doesn’t affect future customers.

Thus, one of the strengths of NPS is simply its ability to isolate dissatisfied customers so company representatives can contact them on an individual basis to learn the details, and then make mistakes right or, at least, obtain feedback to help your company correct product problems.

Most unhappy customers would never take the time and effort to write a full report, and the ones that do make such complaints, are seldom satisfied by canned responses from the company.

Online Surveys make Net Promoter Score Fast and Easy

The easiest and fastest way for both you and your customers to use NPS is through online surveys. Send them as soon as possible after completing every transaction.

Call or, if that’s not possible, email every Detractor. Do your best to help them.

Remember, NPS is only for customers. That means every Detractor is someone who once believed your product or service would solve a problem, so they paid out their money. Somehow, you disappointed them. However, they still want to believe. They still have the problem. Straighten out their issue with your product, and you’ll often convert a Detractor into a Promoter.

The Net Promoter Score is not a perfect tool to predict future company growth, because nothing is. However, using online surveys is obviously an effective way to increase customer loyalty, and that’s undoubtedly important. We want to help you, so contact us today.