Word of mouth is when customers and even workers talk about your business to family members, friends, neighbors, and colleagues. But how do you know how many people talk about your business to others? This is where the Net promoter score (NPS) comes in.

NPS was introduced in 2003 by Fred Reichheld, a business strategist, and consultant at Bain & Company, a management consulting firm in an article published in the Harvard Business Review. 

According to Reichheld traditional customer satisfaction surveys were not effective in predicting customer loyalty and growth. He believed that businesses needed a simpler metric that would measure the likelihood of a customer recommending a company to others, as this was a more accurate predictor of business growth.

To come up with a better solution, Reichheld and his team at Bain & Company conducted extensive research. This was to help them identify the most effective metric for predicting customer loyalty and growth. They found that the likelihood of a customer recommending a company to others was the strongest predictor of growth. 

This led to the creation of NPS which is today widely trusted and used by many companies. To help you understand this customer metric better, we are explaining what it means, how to calculate it, and the types of NPS. 

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What is Net Promoter Score?

Net Promoter Score (NPS) is a way for companies to measure how likely their customers are to recommend their products or services to others. It's a pretty simple concept. Here a single survey question is used to measure consumers' satisfaction with a product or service.

The question is usually in this format "On a scale of 0 to 10, how likely are you to recommend our product, service, or company?"

The idea behind NPS is that customers who are happy and satisfied with a company's offerings are more likely to tell their friends, family, and colleagues about them. A positive response means the company will attract new customers and grow its customer base.

Note that NPS differs from other comparable metrics, such as the customer satisfaction score. Because it reflects a consumer's overall view of your brand rather than their thoughts on specific encounters or transactions.

The Net Promoter Score clearly defines your customers' loyalty to your company.

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Is Net Promoter Score Important?

The metric provides businesses with a clear and measurable way to track customer satisfaction. As they regularly survey customers and calculate their NPS, businesses identify areas for improvement. In the process, they will be able to take action to address any issues that are impacting customer loyalty.

Secondly, the NPS is a widely recognized benchmark for customer satisfaction. Many businesses use the NPS as a key performance indicator (KPI) and compare their scores to industry benchmarks to see how they stack up against their competitors.

Thirdly, the NPS is an important predictor of business growth. Studies have shown that businesses with high NPS scores tend to have higher customer retention rates and are more likely to experience growth in revenue and profitability.

This is because satisfied customers are more likely to become repeat customers, refer others to the business, and provide positive reviews and testimonials.

Therefore yes, the Net Promoter Score is important for businesses that want to improve customer satisfaction, benchmark their performance, and drive growth.

What are the 3 categories of Net Promoter Score?

As you may already learned from the previous section, the 3 categories of Net Promoter Score are:

Promoters (score 9-10) 

You can probably tell the meaning/role of this category of customers from the name "promoters". They are highly satisfied with the product or service and are likely to recommend it to others. They are considered the most loyal customers and can become advocates for the brand.

Promoters are extremely valuable to a business. They're valuable because they not only make repeat purchases themselves but also encourage others to try the product or service. They have what it takes to persuade, convince and encourage others to patronize your brand. 

Passives (score 7-8)

The passive categories of customers are somewhat satisfied with the product or service, but they are not necessarily loyal. They might be easily swayed by competitors or other factors and may not recommend the brand. Passives are less likely to make repeat purchases than Promoters.

But they are not necessarily a negative influence on the brand. 

Detractors (score 0-6)

They are dissatisfied with the product or service and are likely to share negative feedback with others. They can harm the brand's reputation and might switch to a competitor. Detractors are the customers that businesses should be most concerned about, as they not only make fewer repeat purchases but also actively discourage others from trying the product or service.

Negative and degrading product or brand reviews come from this category of customers.

How is the Net Promoter Score calculated?

Once you have collected the responses from your customers, you can calculate your NPS score by subtracting the percentage of detractors from the percentage of promoters. A result is a number between -100 and 100, with higher scores indicating greater customer loyalty and satisfaction.

For example, if you have surveyed 100 customers and 60 are promoters, 20 are passives, and 20 are detractors, your NPS score would be calculated as follows:

NPS = (% Promoters) - (% Detractors)

NPS = (60/100) - (20/100)

NPS = 40

So in this example, your NPS score would be 40, indicating that you have a high level of customer loyalty and satisfaction.

What are the different types of NPS surveys?

Relationship NPS

This type of survey is all about measuring how loyal your customers are to your business overall. It's a great way to get a big-picture view of your customer satisfaction and loyalty.

As you ask the standard NPS question ("On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?"), you can quickly identify which customers are most likely to promote your business and which ones might need some extra attention.

The follow-up questions in a relationship NPS survey are necessary to help you dig deeper into specific areas of your business that might be impacting customer loyalty.

Let's say you might ask questions about your product quality, customer support, or website usability. This type of survey is great for getting a sense of how your business is performing overall and where you might need to focus your efforts to improve customer satisfaction.

Transactional NPS

Measuring customers' satisfaction after a specific interaction or transaction with your business is the main focus here. For example, you might send a transactional NPS survey after a customer makes a purchase or contacts your customer support team. With this survey, you will be able to identify pain points in your customer's journey and make adjustments.

The key to a good transactional NPS survey is timing. You want to send the survey soon after the transaction takes place, while the experience is still fresh in the customer's mind. This will give you the most accurate feedback and help you make the most impactful improvements.

Continuous NPS

Here, you track customers' loyalty over time. By sending regular NPS surveys to a group of customers (e.g. monthly, quarterly, or annually), you can see how their loyalty and satisfaction change over time. This type of survey can help you identify trends and patterns in customer loyalty, and make data-driven decisions about how to improve it.

One way you can achieve excellent and effective continuous NPS surveys is through consistency. You want to make sure you're sending the same survey to the same group of customers at regular intervals.  With this, you can confidently track changes in loyalty over time and identify areas where you might need to step up.

Competitive NPS

As an entrepreneur, you should know what your competitors are up to. This knowledge will guide your operations and decisions. That is why this type of NPS survey is important. This type of survey is all about comparing your business's NPS to that of your competitors. 

How? You ask the NPS question to both your customers and your competitors' customers. The answers you get will help you discover how you stack up against the competition.

Conducting Competitive surveys can help you understand where you might be falling short compared to your competitors, and identify areas where you can differentiate yourself and stand out.

One helping factor in a good competitive NPS survey is accuracy. Because you want to make sure you're asking the same question to both your customers and those of your competitors.

This will help you get an accurate picture of where you stand in the market.

Employee NPS

What this survey measure is employees' satisfaction and loyalty.  At this level, the survey question goes like this ("On a scale of 0 to 10, how likely are you to recommend working at our company to a friend or colleague?").

From their responses, you will be able to grasp a sense of how engaged and committed your workforce is. 

Answers from this type of survey guide you to improve employee retention, productivity, and overall job satisfaction. The key element to a good employee NPS survey is actionability. You want to make sure you're using the feedback you receive to make concrete improvements to the workplace.

Employees' survey is very important to every company because it helps you as the founder or CEO build a stronger, more engaged workforce and create a more positive work environment overall.

Brand NPS

This type of NPS measures how likely customers are to recommend a specific brand within a company's portfolio of products or services. For example, if a company sells multiple brands of clothing, customers might be more likely to recommend one brand over another based on their personal experiences.

Companies use this type of NPS to understand which brands are resonating with customers and which ones might need more attention.

Product NPS

Product NPS surveys are always very specific and targeted at the "product" itself. As you can probably imagine, product NPS measures how customers are likely to recommend a purchased product or a service they patronize to others.

For example, if you bought a new smartphone and were happy with it, you might be likely to recommend it to others. Companies use this type of NPS to understand how well their products or services are performing in the market.

Since the concentration of this survey is on the product, the responses help companies understand how to improve the product features or quality.

For instance, a company that produces bathing soap can ask customers how they're likely to recommend others based on skin maintenance, bleaching level, reaction, fragrance, and ingredients among others.

To improve customer satisfaction based on the responses, the company would be able to know the ingredient to increase in quantity or reduce. It will also know how to make decisions that would improve overall customer satisfaction.

Touchpoint NPS

Touchpoints refer to specific units that work together to achieve satisfaction for a customer in a company or business. So here you measure how likely customers are to recommend a specific interaction or touchpoint with your company, such as a customer service call or online chat.

For example, if you had a great experience with a customer service representative who helped you solve a problem, you might be likely to recommend that touchpoint to others. Companies use this type of NPS to understand how well their various touchpoints are performing and which ones might need improvement.

Conclusion

Net Promoter Score is a widely used metric across industries and provides a quick snapshot of customers' sentiment and level of satisfaction. It is one of the most trusted metrics for measuring customers' satisfaction and loyalty.

Effective NPS comes from paying attention to the results obtained from the three categories of NPS which include promoters, passive, and detractors. You can also measure your company's NPS based on the various types like Relationship, Transactional, Competitive, Brand, and Touchpoints among others.

You must know that NPS is just one way you can measure customer satisfaction and loyalty. Also, NPS should not be used in isolation. Other metrics, like customer satisfaction surveys or customer lifetime value, can also provide valuable insights into your customers' experience.

However, NPS is simple and a widely used tool that has helped businesses identify areas for improvement and measure the impact of changes over time.

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