June 27, 2017

Do You Know Your Net Promoter Score?

One of the most important drivers of business for any organization — of any size — is referrals from satisfied customers. Meeting or exceeding customers’ expectations creates a long-term relationship and loyalty, which leads to referrals. And loyalty can pay off — loyal customers are worth up to 10 times their initial purchase value.

Measuring satisfaction to determine if you are exceeding customer expectations does not need to be a long and complex research process. But no matter what method of customer survey you use, at a minimum it should include one very important question: Would a customer recommend your organization to other prospective customers?

This question is the basis of the Net Promoter Score® (NPS®), a customer-loyalty metric developed by Fred Reichheld, Bain & Company and Satmetrix Systems. It was introduced by Reichheld in his 2003 Harvard Business Review article, “One Number You Need to Grow,” and is designed to concisely measure customer satisfaction and loyalty.

NPS has been widely adopted — an estimated two thirds of Fortune 1000 companies use the metric. It serves as a succinct measure of customer experience, entirely focused on customers’ willingness to recommend a product or service to someone else — and has been highly correlated with business and revenue growth.

The NPS is calculated using the answer to one key question, measured on a 0 to 10 scale: “How likely is it that you would recommend [brand/organization] to a friend or colleague?”

Those who respond with a score of 9 or 10 are called Promoters; these are loyal enthusiasts who will keep buying from you and refer other potential customers. Those who respond with a score of 0 to 6 are labeled Detractors, and are less than satisfied or unhappy customers who can damage your brand and impede growth through negative word-of-mouth. Respondents who rate you with a score of 7 or 8 are labeled Passives; their behavior falls in the middle of Promoters and Detractors. They are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.

Based on responses to the question highlighted above, the Net Promoter Score is calculated by subtracting the combined percentage of customers who are Detractors and Passives from the percentage of customers who are Promoters. Note that for purposes of calculating a NPS, Passives count towards the total number of respondents. A NPS can range from a low of -100 (if every customer is a Detractor) to a high of 100 (if every customer is a Promoter).

In general, a NPS that is below 0 is an indication that your organization has a lot of work to do to improve its customer satisfaction. If your NPS is higher than 50, that indicates your company is doing well and has far more happy customers than unhappy ones. A NPS of 75 or more means your customers love you, and your organization is generating a lot of positive word-of-mouth from referrals. The higher your NPS, the more likely it is that your customer referrals will generate new leads and more growth for your organization.

To determine how your own organization is doing in terms of its NPS, you can compare it within your own industry, within your region, or use it as your own benchmark to assess how you are doing over time. For example, Satmetrix annually publishes its Net Promoter industry benchmark reports for a variety of industries. The following are the industry leaders for selected sectors. It is worth noting that the not-so-surprising names of sector NPS leaders, as well as the range of these industry-leading NPS scores — from a low of 32 percent for the cable and satellite TV industry (Verizon) to a high of 76 percent for the auto insurance industry (USAA):

  • Airlines: Southwest at 66%
  • Auto Insurance: USAA at 76%
  • Cable & Satellite TV: Verizon at 32%
  • Credit Cards: American Express at 41%
  • Grocery and Supermarkets: Trader Joe’s at 63%
  • Health Insurance: Kaiser at 35%
  • Laptop Computers: Apple at 76%
  • Online Services: Amazon at 69%
  • Smartphones: Apple at 70%

While other factors besides customer loyalty play a role in driving an organization’s growth —including economic or industry expansion, innovation, competition and so on — the NPS is an important measure of your customers’ overall perception of your brand. It is straightforward and easily understood by everyone, from the executive office to the front line. It provides a benchmark and target that can be used with other metrics and insights gleaned from your customer research to provide a comprehensive, actionable view of your performance as perceived by your customers.

Your organization’s path to sustainable growth should focus on creating more Promoters and fewer Detractors. By measuring, monitoring and making your NPS — and ensuing actions to improve it — transparent throughout your organization, your NPS will become the number you need to know to grow.

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