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How Net Promoter Score Can Change the Way you Understand your Business

NPS is a critical tool: Not only is the process of collecting and analyzing its data fairly simple, but it also can be used to determine how your company is performing compared to your closest competitors. You only need to make sure you’re looking in the right direction

Matt Duczeminski
May 18 2017

Something tells me that if you’re here, reading this article, it’s safe to say you understand the importance of generating loyalty and evangelism among your customer base. In fact, you’ve been working tirelessly to enhance the services you provide in the hopes that your satisfied customers will start singing your praises every chance they get.

But how do you know for sure that your efforts are paying off and that your happiest customers are spreading positive word of mouth to their friends, family members, and colleagues?

While there are a ton of metrics you could use to gauge the possibility of a customer becoming an evangelist, none are as simple and straightforward as the Net Promoter Score (NPS).

We’ll describe exactly what the Net Promoter Score is, how it’s calculated, and what the score actually tells you. We’ll also discuss some of the pitfalls of taking the Net Promoter Score at face value rather than using it as it’s meant to be used: as a basic gauge of your customers’ likelihood of becoming evangelists of your brand.

Before we get too ahead of ourselves, though, let’s define NPS and how to calculate it.

Find and Define your NPS

As mentioned earlier, your company’s Net Promoter Score measures the chances of your customers recommending your products or services to a peer.

While calculating many other measures of customer loyalty and evangelism requires a variety of data and other insights, determining your company’s NPS necessitates you ask your customers one simple question: “On a scale of 1-10, how likely are you to recommend our services to someone else?”

Once you’ve collected a reliable sample size of responses, you’ll then group respondents in one of three categories:

  • Promoters: Those who reported a likelihood of 9 or 10, who tend to be satisfied and loyal customers and will probably recommend your brand to others.
  • Passive Customers: Those who reported a score of 7-8. They aren’t necessarily unhappy with the service you’ve provided, but they aren’t jumping at the chance to tell others about your company, either.
  • Detractors: Those who reported a score of 0-6, who are generally unhappy and wouldn’t recommend your brand to a friend or family member (or, even worse, they’d actively discourage engaging with your brand).

Once you’ve segmented the respondents into these groups, add up the total number of detractors and promoters. Find the percentage of the whole for each (by dividing the number of detractors or promoters by the total number of respondents, then multiplying by 100). Finally, subtract the percentage of detractors from the percentage of promoters.

For example, let’s say you poll 100 customers. 55 of them are considered promoters, while 15 of them are considered detractors. You’d subtract 15 from 55 to determine that your Net Promoter Score is 40.

(Note that the highest possible Net Promoter Score is 100 [100% promoters – 0% detractors], and the lowest possible score is -100 [0% promoters – 100% detractors].)

Of course, this number is relatively meaningless without some context. So let’s take a look at the average Net Promoter Scores across a number of industries, as well as the highest reported NPS.

Net Promoter Score by Industry

A “good” Net Promoter Score depends entirely on the company’s industry.

According to data collected by Satmetrix in 2016, Nordstrom claimed an NPS of 80 – the highest NPS among department stores (and highest overall, as well). Among internet service providers, Verizon’s NPS of 21 was enough to take the lead position in the industry.

Not surprisingly, the average NPS within industries varies as well. In accordance with the above data, the average NPS of all major department stores was 58, while the average NPS of all internet service providers was only 2.

(Looking at it this way, Verizon’s seemingly low score of 21 is actually incredibly high when compared to the industry average. In fact, the difference between Verizon’s NPS and the average ISP company’s is just about the same as the difference between Nordstrom’s and that of the average department store.)

Let’s take a quick look at some of the other average scores reported across various industries to further illustrate the variance of NPS:

  • Home Insurance: 42 average NPS
  • Hotels and Hospitality: 39 average NPS
  • Cell Phone Service: 30 average NPS
  • Health Insurance: 18 average NPS
  • Cable/Satellite TV Services: 7 average NPS

Though your company’s NPS can reach as high as 100 (and as low as -100), it’s important to grade the score not in a vacuum, but as it compares to the score of other companies in your field.

So you know how to calculate your Net Promoter Score, and you have a good idea of what your NPS should be (in terms of your industry standards). Let’s take a look at how knowing and understanding your Net Promoter Score can benefit your company.

NPS as an Assessment of Loyalty Initiatives

The first time you calculate your company’s NPS will provide a good baseline of whether your customers are ecstatic about the service you provide, are relatively satisfied with said service, or are completely unhappy with your company.

But your NPS will become even more relevant as you reassess it quarterly or yearly.

Say, for example, that you were rather disappointed with your initial NPS, so you decided to focus more of your company’s resources on generating customer loyalty. If, after a year’s time, your NPS were to dramatically increase, you would have good reason to believe your efforts were well worth the time and money invested.

(One thing to note here: The more changes you make over a period of time, the less you’ll be able to make a direct correlation between the changes you’ve made and the shift in NPS. If your goal is to increase your NPS, than this is a moot point. However, if your goal is to determine which changes were the cause of an increase in NPS, you’ll need to make one modification at a time, reassessing your NPS after each adjustment is made.)

Assessing the NPS of Separate Departments

While you certainly can use the Net Promoter Score to determine the overall effectiveness of your company as a whole (in terms of providing for customer satisfaction), you can also use it to assess the ability of individual company departments to provide for your customer’s needs.

Determining the NPS of each of your departments can help you pinpoint specific areas of your company that are in need of improvement (or areas that are performing quite well).

This can help lay to rest any discrepancies between overall NPS and revenue or growth over a specific period of time.

For example, say you’ve shown moderate year-over-year growth in terms of customer base – but your overall NPS has decreased slightly. If you conduct NPS surveys regarding each of your departments, you might find, for example, that your customers love the product you offer – but they’re rather dissatisfied with your customer service.

Not only would that help you determine that your customer service department needs to improve, but you’d also have discovered something about your customers: it takes more than just a quality product to get them to recommend your brand to a friend.

Using NPS Sets the Bar High

You probably noticed earlier that the customer rating must be pretty high in order for it to reflect positively on your overall Net Promoter Score. The fact that your customers could report that there’s at least an 80% chance of them recommending your services to a friend is incredibly telling. In essence, it proves that you should strive to absolutely wow your customers if you want to even have a chance of them becoming brand ambassadors.

On the other hand, even if you do provide for the needs of a specific customer – but you don’t do much to differentiate your service from a competitor’s – it’ll either have no effect on your NPS or it will reflect poorly on it.

So, while an increase in sales and revenue numbers certainly means your company has improved its performance, if this growth is accompanied by a less-than-stellar NPS, chances are you could be doing much better.

Caveats of the Net Promoter Score

We’ve alluded to the fact that your NPS should never be taken at face value. Let’s take a look at some of the ways the Net Promoter Score can actually be a bit misleading – and how you can avoid falling into these pitfalls.

As mentioned, the Net Promoter Score is determined by asking a single question of your customers. And the answer to this question is just a simple number between 0-11.

If we’re being honest, there’s only so much information you can glean from your customers’ responses to that question. Not only that, but it’s rather wasteful to go through the process of getting a consumer’s attention only to ask them a single, solitary question.

So, rather than asking that one question and leaving it at that, consider asking a couple follow-up questions, such as:

  • Why did you report a score of x?
  • What would you tell a friend about our service?
  • Who would you recommend our services to?
  • How could we give you a better experience in the future?
  • What contributed most to your decision to give us a score of x?

As the information you’d want to glean depends on the score you were given, you can tailor and segment these questions based on whether a customer is considered a promoter, passive customer, or detractor. This bit of personalization will not only provide you with better insight, but it’ll also make customers more likely to actually complete the survey in full.

Data Might Be Unreliable (Or Vary in Meaning)

Unlike other customer satisfaction surveys, which ask consumers to report how they felt regarding an event that has already passed (their interaction with a company), Net Promoter Score surveys ask customers to report the likelihood of them taking an action in the future.

Of course, there’s no guarantee that those who say they will recommend your product to a friend will actually do it.

Not only that, but the degree to which a friend or family member will actually listen to said recommendation varies drastically depending on individual circumstances. For example, a loyal Pepsi-drinker will probably never switch over to Coca Cola, no matter how much a friend tries to convince them to do so.

Another thing to note is that an NPS that would be considered awful in one industry would actually be considered amazing in another. This goes back to the idea that a consumer’s propensity to take the advice of a friend varies and adds in the notion that, frankly, consumers in general have different levels of appreciation for specific industries.

To illustrate this, recall that Verizon has the highest NPS of all cable/satellite providers at 26. This shows that not many people are that happy with their television service – making a recommendation for Verizon all the more valuable to the company. Then again, if the runner-up in the industry has a score of 25, Verizon would know it doesn’t have much room to rest on its laurels.

So, again, it pays to not just compare your NPS to the industry standard, but also to consider how valuable a recommendation actually is within your industry. Use the score as a starting point for your analysis of your company – then go deeper.

Customer’s Level of Satisfaction Not Accounted For

This actually pertains more to a customer’s level of dissatisfaction. As mentioned, a customer is considered a defector if they respond with a rating of 6 or less on the NPS survey.

Think about that for a second: a customer with a 0% chance of recommending your brand to a friend is grouped in with a customer who has a 60% chance of doing so. And each has the same level of effect on your overall NPS.

Say it turns out that 30% of your customers are considered detractors and 50% are considered promoters. On the surface, a score of 20 (which is slightly above the cross-industry average) is pretty decent. But, without looking deeper at the data, it’s impossible to tell if the detractors were slightly put off by your service (rating you a 6), or absolutely hated your company (rating you a 0).

You can alleviate this problem by tallying up the number of each response given. Though this data won’t factor into your actual NPS, it will provide more specific information as to where your detractors, passive customers, and promoters stand in terms of customer loyalty.

Conclusion

The Net Promoter Score is just one of many metrics you can use to determine the performance of your company with regard to generating customer loyalty and evangelism.

If you’ve yet to begin assessing this area of your company, the Net Promoter Score is a good place to start. Not only is the process of collecting and analyzing the data fairly simple, but it also can be used to determine how your company is performing compared to your closest competitors.

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Matt Duczeminski

Matt is a professional writer specializing in helping entrepreneurs improve relationships with their customers. He lives in Philadelphia with his wife, Sarah, and he'd probably get a lot more work done if his cat would stop bothering him.

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