What Is NPS? (and why do so many businesses use it?)

Business Ownership | 5 minute read

What Is NPS? (and why do so many businesses use it?)

If you're in business, it's likely you'll have come across Net Promoter Score®. But why do so many companies use NPS? And is it really an accurate measure of customer satisfaction and loyalty? Find out as we look at what's good and bad about NPS.

Gary Bartley

Gary Bartley

December 8, 2017

It's been around since 2003, and frequently comes up whenever people talk about customer satisfaction and customer loyalty. But if you've never used it, you may well wonder, 'What is NPS?'.

 

Net Promoter Score® (NPS) is a customer loyalty and satisfaction rating used by thousands of businesses across the world. Developed by Fred Reichheld, Bain & Company and Satmetrix, NPS was designed to help companies measure general customer satisfaction and predict their fortunes over 3 years.

 

NPS was created as a relational survey, designed to be sent to a business’ full database over 90 days. Now, it’s more widely used as a transactional survey, sent to customers after interactions and purchases.


 

How does NPS work?

 

It all begins with a single question:

 

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

 

The customer then answers the question by choosing a score between 0-10, with ten being the best. Simple.

 

In its original design, NPS surveys are sent to 1/90th of a business’ database, every day for 90 days. Then, after 90 days, the business would have their Net Promoter Score®, made up from all the responses.

 

Anyone who responded with a score from 0-6 is classed as a Detractor, 7-8 is classed as Passive and 9-10 is classed as a Promoter.

 

But what exactly are these detractors, passives and promoters?

 


What's a detractor?


Detractors are unhappy customers who are unlikely to return to your business. But it gets worse. Detractors are also your biggest risk of damaging online reviews and negative publicity. They’re the people who discourage others from buying from you.

 


What's a passive?


Passives are satisfied customers who may or may not do business with you again. Their scores aren’t necessarily bad, but they’ll be more easily enticed by competitors. In other words, you may need to give them a reason to buy from you again.

 


What's a promoter?


Promoters are your most loyal customers. The ones who will regularly do business with you and recommend you to friends and family. Therefore, make sure to include these customers in your marketing campaigns and loyalty clubs for best results.

 

You may find it strange that only customers that give you a 9 or 10 are categorised as promoters. This was intentional from the outset to more accurately show those who are likely to refer your business. Not just those who are happy with their experience.

 


How is NPS calculated?


Begin calculating your Net Promoter Score® by working out the percentage of your customers who are detractors, passives and promoters. Then, subtract the percentage of detractors from the percentage of promoters and voila.

 

Your score should be anywhere within -100 to 100. The higher the better.

 

To illustrate my point, here’s an example:

 

11 people visited a business and each person gave a different score. That means there were 7 detractors (64%), 2 passives (18%) and 2 promoters (18%), giving the business an NPS of -46.

 


How do I get my customers to answer the question?


The best methods of getting customer responses will depend on your business type. Survey software is essential for every business. Then you must decide what types of surveys you want to send.

 

Most businesses will use SMS and email surveys to collect customer feedback. Therefore, if you already have customer data, we'd highly recommend these surveys too.

 

If you're a service or brick and mortar business, you'll get best results from setting up tablet apps. If you're an online business, use a widget to collect feedback from your website visitors. The choice is completely up to you.

 

For the most accurate results, try more than one method. By getting more survey responses, your NPS will have more statistical confidence. After all, you don’t want to base your business' future on a small percentage of opinions that don’t resemble the majority of your customers!

 

TIP - To increase your survey response rate, keep them simple and with as few questions as possible. Unnecessarily adding extra questions will cause your response rate to drastically reduce.

 

Now you’ve got your Net Promoter Score®, it’s time to put it to good use…

 


How can NPS help my business?


Net Promoter Score® can help your business by giving you an idea of your customer satisfaction. Knowing this, you can identify those who like your business, and those who won't buy from you again without encouragement.

 

How does this help? You can now focus specific marketing campaigns on satisfied customers. So, create a loyalty scheme, personalise your messages or get creative. You'll reduce spend and increase results in no time! After all, the probability of retaining a customer is up to 14x higher than acquiring a new customer.

 

So, what about your unsatisfied customers? Obviously, you'll want to win them back (unless you've just got too many customers already).

 

Many businesses ignore their unimpressed customers, assuming they're a bad fit. Sometimes this is true. Sometimes it isn't. But there's no harm in finding out. Offer these customers an apology and try to resolve their issues and win them back. Your results may be surprising. (For very little cost!)

 

These are the short-term benefits of NPS but remember it was designed with the long-term in mind. Initial research from Reichheld suggested that high NPS scores correlated with company growth over 3 years. This makes perfect sense. After all, customers who are likely to recommend a business, probably liked their experience... right?

 

Unfortunately, things aren't always so rosy.

 


Are there any problems with NPS?


Despite the benefits that NPS brings, there are four problems that companies often find. 

 

1 - Passives are ignored


As Bruce Temkin's research found - over half of passive customers will buy from a company again. These customers are valuable business and provide you with the opportunity to transform them into promoters. However, NPS ideology largely ignores these customers. And very few businesses who use NPS focus on getting more passive customers.

 

Why? Because the dream is to have as many brand advocates as possible. However, having lots of passive customers means you have lots of customers who are more likely to buy from you again than not. So it doesn't make sense to disregard passives. They could be an achievable goal for many businesses' success. But it's not to be. Heck... passive customers don't even get a fair representation in the NPS calculation!

 

For instance, if 99% of your customers score you 8/10, but 1% score you 6 or less, you’ll have a negative NPS score. That hardly seems fair considering it could be the toss of a coin between a customer scoring you 8 or 9. Which brings us onto the next problem…

 

2 – Scale interpretation


Interpretation is a problem that will affect all types of numerical scores.

 

Here's an example. One customer may score a business 8/10 thinking it was great. They will definitely return and recommend others. But not according to NPS. This is because the Net Promoter Score® only treats them as passive, unimpressed customers. This may cause you to underestimate your performance and future referrals. Or worse.

 

The problems aren't just at the top of the scale though. By grouping together customers who score you 0/10 and 6/10, you can cause your business big problems. Sure, all detractors require excellent customer service skills to win them back. But to do this effectively, you need to first understand the size of the task.

 

A 6/10 score may indicate that you need to work on one or two things to win a customer back. Whereas, 0/10 emphasises that there are major problems that need an immediate resolution and apology.

 

Not only can misinterpretation affect your customer relationships, it can cause lasting damage to your online reputation. Customers who score you 0-2 are the most immediate danger to your business. They need an immediate apology and resolution of their issues to stop them writing a bad review. Then you can contact your remaining detractors. By focusing your immediate attention on every detractor, you leave your business vulnerable.

 

3 - Answer score distribution


This is a problem faced by businesses who only use the Net Promoter Score® to measure performance. If this business' score is -25, they will base progress on their score increasing. The distribution is completely ignored.

 

Don’t make this mistake. The score distribution is hugely important, as you will see in the below three examples:

 

Example NPS Score


NPS Score


NPS Score

 

These distributions show that the business has performed very differently in each season. But how would they know this from their Net Promoter Score®? They wouldn't.

 

Spring's score distribution shows that lots of customers have big problems. Whereas Summer and Autumn show the need for small improvements for a better NPS and, hopefully, happier customers. I say hopefully because you can’t be certain with NPS. And that brings us onto the last problem...

 

4 - The question


The biggest problem with NPS is that the question doesn’t actually ask the customer how they feel! Instead, it’s very interpretive.

 

Some customers might love your business but not want to recommend you. Your business could be personal to them (such as medical care) or very niche, so unlikely to be useful for their friends and colleagues.

 

Meanwhile, some customers might recommend you to someone else, even though it’s not their cup of tea. With the NPS question, you wouldn’t know if they’d do business with you again or not. Nor would you know how they feel. And that’s the main reason we created the Customer Happiness Score®.


 

Are there other options to NPS?


Yes! There are other alternatives including:

 

Customer Effort Score (CES)

 

Customer Satisfaction (CSat)

 

... and the brand-new Customer Happiness Score ® (CHS ®)

 


What is NPS: the takeaway


Overall, NPS is a well-respected score that indicates performance levels and predicts long-term fortunes. And many businesses use it periodically to check that they are on course to reach those fortunes.

 

But remember, NPS isn’t necessarily as accurate as other scores out there. It is open to interpretation and requires some assumption on your behalf.

 

You must measure your performance. After all, that’s what separates a good business from a great business. It’s the difference between initial success and long-term success. It’s the difference between just having customers and having loyal customers.

 

So, whether you’re measuring by:

 

- Customer Happiness (CHS®)

- the likelihood for a customer to recommend you (NPS)

- customer effort (CES)

- or customer satisfaction (CSat)

 

The most important thing is that you are measuring something.

 

Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.



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