Net Promoter Score (NPS): the customer loyalty KPI
All you need to know about the Net Promoter Score. Find out how this KPI can be a very effective tool for raising customer loyalty towards your company.
What kind of KPI is the Net Promoter Score?
The Net Promoter Score (NPS) is a key performance indicator focused on one simple thing: measuring customer loyalty. Fred Reichheld, from Bain & Company, outlined the NPS KPI in a seminal 2003 article in the Harvard Business Review entitled The One Number You Need to Grow.
NPS was first introduced as a useful alternative to long and time-consuming customer satisfaction surveys. Rather than establishing how people feel about a company on a superficial level, the primary goal of this KPI is to create a commercially meaningful score based on customer loyalty behaviors.
Reichheld also aimed to show the correlation between the NPS and the organic growth of a company in order to predict and improve future business performance. The basic hypothesis is that the higher your NPS score is, the more likely you are to outperform your competitors. Too simple to be true? Yes and no, as we will see in this article.
Today, the NPS customer loyalty KPI is still used effectively to improve the customer experience, and as a result, acquisition and retention rate. This is why the Emolytics team has developed a dedicated and proven tool to continuously measure the Net Promoter Score on websites or at points of sale (see figure). It’s a very simple way to monitor your customer relationships with real-time insights, and resolve issues quickly and effectively.
How does the NPS performance indicator work?
Also known as “The Ultimate Question“, the Net Promoter Score performance indicator is calculated by asking your customers a simple survey question: “How likely is it that you would recommend our company/brand/product/service to a friend or colleague?”
Based on their responses on a scale of 0–10, you can identify three levels of loyalty groups: Promoters (9–10 score), Passives (7–8 score) and Detractors (0–6 score).
- Promoters are loyal supporters. They are your regular customers who are likely to increase their purchases over time.
- Passives are satisfied for now but not particularly enthusiastic customers. They can be easily swayed by your competitors.
- Detractors are unhappy customers. They discourage other customers from using your services and promote negative word-of-mouth about your company.
To calculate your NPS score, all you need to do is use the following formula: NPS = % of Promoters — % of Detractors.
Example of NPS response distribution as measured through Emolytics
The average Net Promoter Score is estimated at 34.3%, according to SPG Consulting (2013), who established a global rating scale to help companies interpret NPS survey results:
- Perfect: 100
- Spectacular: 85 to 99
- Excellent: 70 to 84
- Very Good: 55 to 69
- Good: 40 to 54
- Average: 25 to 39
- Mediocre: 0 to 24
- Poor: -25 to -1
- Terrible: -50 to -26
- Abysmal: -100 to -51
This scale is useful for focusing on two key goals: generating Promoters and minimizing Detractors. But to give real value to NPS, remember that this performance indicator will vary depending on the industry or geographical area of your business. Keep in mind that an accurately benchmarked Net Promoter Score is essential for identifying threats and opportunities, and maintaining your customer balance sheet.
Net Promoter Score: the Good and the Bad
As with any other KPI, the Net Promoter Score has its pros and cons.
- NPS is intuitive, simple and easy to understand. It involves one question, one score, one percentage — one common language to classify customers.
- NPS is itself a customer-centric metric, as it helps companies focus on a positive consumer experience at the point of sale and post-sale.
- NPS is easily benchmarked. Thanks to its simplicity and standardized value, it can be used to compare time periods, companies or products, all at the same time.
- NPS is not specific enough, due to its simplistic 3-point scale (Promoters, Passives and Detractors). The margin of error is around double compared to the more traditional customer satisfaction survey, so for a reasonable level of precision, a larger sample size is needed.
- NPS lacks in actionable data in terms of coverage and accuracy, so it can be difficult for customer success teams to make strategic plans based on the data. In fact, 85% of customers are not represented by Net Promoter Score.
- NPS scores are subjective. Some customers might consider a score of “8” to be honorable, whereas the NPS might not. Companies can even bias results with messages to their customers such as “vote 9 or 10, and not below”.
How can you implement NPS as a KPI in your business?
NPS can help in a wide range of cases, processes and departments to give a daily at-a-glance viewof customer satisfaction without having to wait for complex revenue figures. Here are some practical examples of NPS used by Emolytics partners:
NPS as a case resolution KPI in customer service teams
Here, the first thing to do is define which loyalty NPS score needs a response. For example, customers who rate the company “0–4” need follow-up action. These customers should then be tracked for the number of closed cases with a positive outcome.
NPS in product development
NPS can be useful for product development, allowing companies to easily measure and survey how much individual customers’ feedback is addressed by a particular function. This allows product designers and managers to better understand the needs and expectations of their target audience.
NPS to improve experience for prospects
NPS is designed as an indicator for only paid-for services or products. However, the experiences of existing customers and prospects can often overlap, depending on price changes, user experience on the website, or in-store service. The Emolytics development team has worked hard to address this specific application to help companies understand why potential customers are turning to their competitors.
NPS in the B2B environment
B2B faces a number of specific challenges, including a growing number of purchase stakeholders (the average buying group is now 5.4). In order to win group purchase decisions, companies can collect customer contact details automatically by asking their customer contacts to pass on details of other relevant contacts, so they can capture more comprehensive NPS data.
Our ultimate advice: no matter how you decide to implement the Net Promoter Score KPI, always make your score visible throughout your organization, and reward your teams for a high NPS score.
3 quick wins to turn your NPS survey into a growth hack
How Emolytics can identify the best channels with the most engaged customers
1. Don’t just collect NPS — it’s the symptom of high or low customer loyalty, not the cause. Keep asking questions via customer surveys about value, quality, and usability to conduct effective key-driver analysis.
2. Ask additional NPS questions. Depending on the company or industry, different questions from the NPS model can give a better performance indicator of customer loyalty, such as return or repurchase intent. Additional questions are listed in our Emolytics “standard questions” library.
3. Ask “Why?” It is essential to turn a score into an actionable metric in order to improve future business performance. Our Emoscore correlated to NPS KPI allows you to measure in-depth user emotions about their rating in your satisfaction surveys.
Getting started with NPS
Example of how Emolytics helps you measuring NPS continously
Simple, intuitive and easy to benchmark, the Net Promoter Score is a great performance indicator to drive a short and efficient satisfaction survey and maintain healthy customer relationshipsthroughout the value chain of your business.
Thanks to a high monthly response rate and regular ongoing improvements, the Emolytics NPS solution can address some of its main limitations in a positive and effective way. Using this KPI as a support metric in conjunction with other data and assessment methods will allow you to increase your brand ambassadors and boost company sales.
Ready to get started? Request a free consultation with one of our KPI experts. Together we will find the best solution to implement NPS in your business. Or just try our tool for free!