NPS – Net Promoter Score: The Complete Guide

NPS – Net Promoter Score:
The Complete Guide

In this resource guide:

What Is NPS?
Calculating NPS
Who Created It?
The Link Between NPS and a Company’s Financial Success
Charles Schwab Corporation: Case Study
Why Is It Important?
When Should You Start Using NPS?
Ways to Check Your NPS
Ways to Improve Your Score
Two Main Types of Surveys
Four Types of Data We Can Look at From Our NPS Survey
Important Notes to Remember
The Best NPS Follow Up Question
Key Statistics

What Is NPS?

The Net Promoter Score is an index that essentially measures customer loyalty to a product, service, or company. Typically, this number is obtained through a survey that is sent to customers after interaction with a brand. The NPS is easy to gauge, since it is based off of a single question:

“On a scale of 0-10, how likely are you to recommend our product/service/company to a friend or colleague?”

Based on the number that is given, the customer is then placed into one of the three categories: Promoter, Passive, or Detractor. These categories describe how the customer feels about the product or service, their loyalty to the company, and whether or not they would recommend it. The categories are explained in further detail below.

After gaining a response from the customer, it is common to then follow up with an open-ended question to gain more insight:

“What is the primary reason for your score?”

The creators claim that a company’s Net Promoter Score correlates with revenue growth – companies with high NPS scores tend to grow at more than twice the rate of their competitors.

Calculating NPS

Calculating the NPS is a very simple process. Based on the number that a respondent gives, they are placed into one of the following 3 categories:

Promoters: these are the people who have responded with a 9-10 score. They are very positive towards your product or service, and are very likely to recommend your brand to potential customers.

Passives: these are the people who have responded with a 7-8 score. These customers do not spread negative word of mouth, however, are not very likely to spread positive word of mouth either. The Passives are not included in your overall NPS score because their responses have a net neutral effect.

Detractors: these are the people who have responded with a 0-6 score. They are unhappy with your service, and are likely to damage your brand reputation with negative publicity.

NPS

Calculating your company’s overall NPS can be done by subtracting the percentage of Detractors from the percentage of Promoters:

(% of Promoters) – (% of Detractors)

Who Created It?

The Net Promoter System was created by Fred Reichheld, Bain & Company and Satmetrix back in 2003. Before this system was implemented, traditional customer satisfaction survey methods were used. Reichheld felt that these methods proved ineffective because often these surveys were too long and complicated and did not provide actionable insight. With the Net Promoter System, organisations can receive feedback much quicker from customers, placing them ahead of their competitors as well as allowing them to take action faster. Today, NPS is effectively used by hundreds of organisations worldwide.

The Link between NPS and a Company’s Financial Success

Today, markets are becoming more competitive than ever, and customer expectations are at a high. With this in mind, Gerard Kliesterlee, CEO of Royal Philips Electronics, realised he needed to change the culture of his product driven organisation. With help from the chief marketing officer, Geert van Kuyck, he searched for an approach to implement this change that aligned with the company’s strategic philosophy of “sense and simplicity”. After researching approaches taken by various major firms around the world, he landed on NPS. They chose to take this approach because NPS ties directly to revenue growth, and drives action by providing feedback that is specific and immediate.

After some investigating, van Kuyck found that there was a strong connection between Philip’s NPS score, compared to their biggest competitor, and their rate of growth relative to competitors in the market. They learned that leading the competition on NPS mattered more than obtaining a specific score. After doing some additional digging, the local research teams found that relative NPS explained 90% of the changes in the market share between Philips and its key competitor. Corporations around the world have done similar analysis and the trends they found were very much similar.

NPS explained roughly 20% to 60% of the variation in organic growth rates among competitors. Click To Tweet

Charles Schwab Corporation: Case Study

In 2004, Charles Schwab Corporation, a financial services firm, had taken a serious turn for the worse. The founder of the company, Charles “Chuck” Schwab, had retired the previous year, but was asked desperately to take the reins once again. When he returned to the firm, he found that things were out of control. Not only had the stock price dropped from $40 to $6 in a three year period, but about a quarter of their revenue was coming from overcharging their customers. They had completely lost their way and were treating their clients poorly.

At first, they focused on cutting costs to get back on track. But by the fall of 2005, they realised they needed to start focusing on their core clients again and mending those relationships. The leadership team decided to start implementing the Net Promoter framework. Senior Executives spread the idea around the firm, and began to test out survey techniques. When the time was right, they launched the survey and called it the “Client Promoter Score”. This marked the beginning of a huge turnaround.

By 2008, the firm was back on its feet and they had regained their position as a leader in the industry. Their Client Promoter Score rose from -35 percent to 35 percent and their stock had tripled. Some of their major changes included: aggressively reducing prices, eliminating their nuisance fees, increasing their resources for the client-facing staff, and focusing on closing the loop.

When interviewed by a news reporter, Schwab explained, “I don’t care what kind of business you’re in. Clients referring us to their friends or relatives is so much more powerful than any advertising we could ever do.”

64% of marketing executives indicated that Word of Mouth is the most effective form of marketing. Click To Tweet

Why Is It Important?

Benefits of keeping track of your NPS include:

It is simple to understand! Organisations can use this score to easily gain key insights in customer relationships and brand loyalty.
It provides feedback that allows you to take action. After gaining feedback from your customers, you can see where improvements and changes need to be made in order to keep customers around long-term.
It is easy to conduct! Net Promoter Score surveys are straight forward and quick to answer, which is why they have such high response rates.
It helps identify your target segment. Having an NPS makes it easier to identify your target audience and gain a better understanding of them. Is your product or service a good fit for your market?
It helps prevent an increase in customer churn. Your NPS can be useful in quickly finding out which customers are likely to leave, and who you should be reaching out to to see what went wrong.
It helps refine your product roadmap. Based on feedback, you can see which products are doing well, and which ones are not. The survey can help identify customer pain points.
It gives competitive differentiation. While your competitors are waiting around for responses to annual surveys, regular post transaction NPS surveys can put you a step ahead by giving your company a huge competitive edge.
It is affordable for any business. Affordability is important for new businesses and start-ups who are not yet profitable.
It builds an organisational culture of customer success! NPS creates an aligned culture in your company, in which every department works to deliver favourable outcomes for your customers and build long term relationships.

When Should You Start Using NPS?

The sooner the better. Your company will begin to better understand your customers the faster you start using NPS. By implementing it sooner, you will gain insights regarding your company’s strengths and weaknesses early on in the customer’s journey.

When Is the Best Time to Send an NPS Survey?

After the point of purchase. With their recent purchase fresh in their mind, sending a survey to customers after the point of purchase can help you gain an understanding of the initial impression your company is giving off.
After a free trial. When a customer discontinues their subscription of your product or service after a free trial, this is a good indicator that something may have gone wrong. Reach out to this person to find out why.
After discontinuing your product or service. If a long-time customer decides to stop using your product or service, re-engage with them to figure out why they discontinued use and gain feedback.

How Often Should You Send an NPS survey?

Measuring your NPS is an ongoing process, however, how often you should send an NPS survey depends on your business model. The first survey should generally be sent within the first 7-30 days after a customer has interacted with your company. After that, the second survey (or any survey after that) should be sent between 90-180 days after the initial survey. Typically, if your company continues to update its products, it is best to send out surveys more often to get additional feedback. If your company does not regularly update its products, it is not needed as often.

Ways to Check Your NPS

What is a good NPS? A few questions to consider…

Is your score better than your competitors?
- If yes, you have a good score within your industry.
Is it growing?
- An NPS score that is better than your previous score is considered a good score.
Do you keep it above 0?
- Even if your negative score is better than a competitors score, generally, a good score is above 0.

It is important to keep in mind that by itself, a Net Promoter Score is quite meaningless. Rather than looking at it as a quantifiable metric to continue to increase, an NPS should be looked as a qualitative metric to analyse and react to.

Tip: Ask your survey provider whether they have benchmark NPS data to help you compare your results against others in your region or industry.

Ways to Improve Your Score

Reach out to Detractors with a personal contact. Sending the Detractors a personal email asking them about what went wrong is a great way to re-engage with them. It is important to make connections with them to show that your care and also helps to prevent future unwanted circumstances.

Some example follow up questions include:

What is one thing that we should change to make things better for you?
What most dislike about our product or service?

Engage with Passives before they leave. Reaching out to Passives is important because you can gain insight on how to close the gap and turn them into Promoters of your product or service. Because Passives typically do not provide open-ended feedback, you may want to consider offering an incentive or holding an online competition to close the feedback loop.

An example follow up question includes:

Thank you for taking the time to share your feedback. What is one thing that we could do to make you more likely to recommend us?

Express gratitude to your Promoters. You cannot take this customer segment for granted. Reach out to them with gratitude for their loyalty to your product, service or company. Make it known to them that you appreciate their business. A few ways to close the feedback loop with the Promoters is to offer them free merchandise, perks for referring people, or discounts on upgrades.

An example follow up question includes:

Thank you for your feedback! We are so glad you enjoy our product. If you were recommending this product to a friend, what reason would you give them to test it out?

Contact your non-respondents. Typically, non-respondents are the largest customer segment a company will have, and often times, this segment is overlooked. It is crucial to try to re-engage with these customers and gain more insights from them. The best way to reach out to the non-respondents is through a live conversation or a short personal email.

Two Main Types of Surveys

Before sending out a survey, you must determine who you want it to go to and when you want it to get to them. There are two main types to send out that fully depend on the situation and how you want to position your survey. Below, they are listed as well as described.

Relationship surveys: this survey is used to gather a lot of information at once, as it is sent to a large number of people. Because of its wide audience, these surveys generally ask broader questions that focus on the customer’s relationship with the brand or business as a whole. They can be very useful both when you begin implementing NPS and also on an ongoing basis. When sending out this survey, be mindful of any other activity you already have going on with your customers.
Transactional surveys: this survey is triggered based off a particular event, such as purchases, renewals, customer support requests, new product updates, and plan upgrades. Typically, response rates are high with this survey because the customer base has the experience fresh in their mind. It is important to set an appropriate time frame to send this survey out, because you do not want the survey to reach the customer before their interaction with the product or service.

Four Types of Data To Review From Your NPS Survey

Individual NPS Survey Ratings: the number that each respondent gave based on the question, “On a scale of 0-10, how likely are you to recommend this product/service to a friend or colleague?”
The Overall NPS Rating: the number you get by subtracting the percentage of Detractors from the percentage of Promoters. This number can range from -100 to 100.
Additional Information Entered in the Post Survey Question: this information can provide deeper insights regarding the reason why each customer gave the rating that they did, given that you sent them an open-ended question after the initial question. Since this is an open-ended question, you will receive a variety of answers.
The Overall Response Rate: this rate shows the number of people who are responsive to your NPS survey. Typically, brands that have more engaged customers tend to have higher response rates.

Important Notes to Remember

Don’t over-do it: make sure your NPS system has a limit of how many surveys it can send to a customer. You don’t want to overload them with survey requests.
It’s all about delivery: email is generally the best way to reach customers because they check their inbox at a time that is likely convenient for them. Some survey systems also offer SMS invites which can also be effective if you have your customer’s mobile numbers.
Use a real email address: choose either a company email address or a person at the company’s email to send out the survey on. It is better to have it be an email address that is linked to an actual person in case a customer wants to send additional feedback. An email from a person and not a generic ‘admin@’ will yield better response rates too.
First impressions are important: make the email short and to the point. The first impression is important because it is the difference between a customer opening the email to read it or completely ignoring it.
Being professional and trustworthy is key: customers will not look at your survey request if they do not believe it is legit. Make sure your brand logo and colours are visible. Also adding a phone number and address can help reinforce the validity of your invite.
Design for mobile: over half of emails are now opened on smartphones. A well formatted email should look the same, whether it is opened on a smartphone or computer. The survey itself should also be responsive and optimised to the device and screen it is being viewed it.
Your customers should always come first: make your job to listen, learn, and empathise with them.

The Best NPS Follow up Question

There are a number of views on the best NPS follow up question. “What is the primary reason for your score?” is the official wording used by Fred Reichheld, the NPS founder.

Other options include:

What is the most important reason for your score?
Just curious! Why’d you score us that way?
Why did you give that score?
Please explain why you gave us this score.
Please provide your reasoning for this rating.
Awesome, thank you! Would you tell us why you feel that way?
Our apologies for not meeting your needs. Care to tell us why?
Care to tell us why? Your feedback will help us to improve

Key Statistics

Phillips Electronics tracked NPS for a sample of accounts over time and found that where NPS increased, revenue grew by 69%. Where it remained steady, revenue grew only by six percent. And where NPS declined, revenues actually decreased by 24%. Phillips Electronics found that where NPS increased, revenue grew by 69%. Click To Tweet
Charles Schwab Corporation put an end to their downward spiral after implementing an NPS framework. They found that their stock had tripled as their Client Promoter Score rose from -35 to 35, which was a 70% increase in just a few years.
When Apple stores began implementing the NPS system in 2007, they went from a score of 58 to 70. They explained how having NPS makes everyone in the company committed to do the right thing, which leads to profitable growth. A typical electronics store might record $1,200 in revenue per square foot, which Apple exceeds by $6,000 per square foot.
In 2008, Rackspace was saved by NPS, which helped them weather the storm after being hit hard by the stock market collapse. They had raised their NPS score by 20 points, at 63%, and saw their churn rates decline by more than a third, from 3% to 1.9%.

Net Promoter Score – Visual Explanation

Net Promoter Score Infographic:

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