A brief history of Net Promoter Score, how it's calculated, and why businesses are making it a foundation of their customer experience success.
When many businesses consider profitability, they don’t tend to think about customer experience. But it’s the companies that take their customer experience to the next level and really consider the customer’s willingness to recommend their products or services that truly elevate their business and bottom line.
There’s an emotional connection between a customer’s recommendations and reputation. When customers recommend your company’s product or service, they’re actually placing their reputation on the line to do so. Most customers would only recommend a product or service if they felt intense loyalty, thus transforming recommendations into new customers.
Throughout this guide, you will learn about the origin of Net Promoter Score, how it works, and the impact it can have on your business.
How was Net Promoter Score Created?
In 2003, Frederick F. Reichheld administered a customer loyalty survey of more than 4,000 customers across six industries with 20 questions called the Loyalty Acid Test. Reichheld discovered that he could effectively predict repeat purchases or referrals, thus drive profitable growth by asking one simple question:
“How likely is it that you would recommend [this company] to a friend or colleague?”
In the study, which was published in Harvard Business Review, Reichheld left readers with a compelling concept to consider: “The only path to profitable growth may lie in a company’s ability to get its loyal customers to become, in effect, its marketing department.”
What is Net Promoter Score?
Net Promoter Score gauges the likelihood of customers proactively recommending a business to their friends, family, and colleagues. Rather than basing the perception of a company on specific interactions, the two types of NPS surveys measure both the customer’s loyalty to a company or brand (Relationship NPS) and the experience a customer had during a specific engagement with a company (Transactional NPS).
The score is obtained through a survey asking the likelihood of a customer recommending a company’s services to friends, family, and colleagues. While there are many methods in which this survey can be passed along to customers, recent data suggests that consumers prefer email above all other communication channels.
What are Promoters, Passives, and Detractors?
|🙂||Promoters provide a score of 9 or 10 when responding to the NPS survey. They are happy, satisfied customers, who have had a superb customer experience, likely to return to your business, and recommend your business to their family and friends.|
|😐||Passives provide a score of 7 or 8 when responding to the NPS survey. True to their name, Passives are passively satisfied customers who are neither likely to recommend your business nor likely to talk about your business in a negative manner.|
|🙁||Detractors provide a score between 0-6 when responding to the NPS survey. They are unhappy customers, who are likely to tell their friends, family, and colleagues about their poor experience with your business.|
How Do You Calculate Net Promoter Score?
When calculating NPS, only take into account the percentages of Promoters and Detractors. Since data shows that Passives are unlikely to discuss their experience with your business, they are not factored into the Net Promoter Score.
Simply subtract the percentage of Detractors from the percentage of Promoters to calculate your business’ overall Net Promoter Score.
Let’s calculate an example of NPS together. Say a company has 70 Promoters, 28 passively satisfied customers and two Detractors. To calculate the business’ NPS, ignore the 28 passives since they don’t affect customer loyalty either way. We have 100 overall customers, so we know that 70 percent are Promoters and 2 percent are Detractors. We simply subtract the Detractor percentage of 2 from our Promoter percentage of 70 to calculate an overall NPS of 68.
Why is Net Promoter Score so Valuable?
Every company will tell you that they value the customer more than anything. In reality, that simply isn’t the case when you consider that only 17% of companies are using a standardized measuring system to analyze the customer experience they provide.
While it’s extremely impactful for companies to have Promoters essentially offering free marketing services for your business, the true value lies in the ability to work with the Detractors or customers who were dissatisfied with their experience.
There’s no doubt that its hard work to change the mind of an unhappy customer, but the transparency that Net Promoter Score provides gives businesses a fighting chance to make things right when their product or services didn’t live up to a customer’s expectations. Additionally, it allows businesses to develop standard operating procedures when they learn about a customer’s negative experience at the very least.
This is a common theme expressed to XAmplifier CEO, James Kropp, from clients who have been able to completely transform their culture when it comes to putting the customer first.
“Our clients have seen incredible progress in improving their customer experience after seeing their NPS and implementing our recommendations.”
- James Kropp, CEO
How does Net Promoter Score impact businesses?
Consider this example of a customer experience review Capital Dermatology received recently from a Promoter:
“I have seen Dr. Pacheco for more than a decade and have been totally happy with her and her staff the entire time. I have recommended her to many of my friends and I know that at least three of them now routinely see her.”
- Capital Dermatology Patient
This customer is not just raving about their outstanding experience with the doctor and staff in the review but also recommending Dr. Pacheco to their friends, who are now regular customers.
Additionally, NPS provides companies with a significant advantage in capturing leads in their marketplace.
High performing reputation locations—or locations with a high NPS—have about twice as many calls and click to call/web inquiries and leads per month than low performing reputation locations—or locations with a low NPS.
Implementing Net Promoter Score is a simple and highly profitable way to measure the customer experience you are providing on a daily basis. While many companies have tried to develop a DIY method for tracking Net Promoter Score, there are huge advantages to contracting these services from an expert provider.
XAmplifier is a proprietary, cloud-based software designed to help businesses build their online reputation, optimize the customer experience, grow digital audiences and drive market insights.
If you’re interested in learning more about Net Promoter Score or the proprietary XAmplifier software, contact us today for a free consultation.