During recent coaching sessions, the subject of Net Promoter Score (NPS) came up. My clients wanted to learn what NPS is and how it might benefit their businesses. Thus, I thought this is a good time to share a few ideas about NPS.
What Is Net Promoter Score?
Simply put, NPS is a very simple, direct, relatively easy, and effective method to measure your customer’s (client’s, patient’s) loyalty to your business and the likelihood they will refer your business to others. In other words, how healthy is your customer experience and your customer relationships? It was developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix Systems. Net Promoter Score was introduced by Reichheld in his 2003 Harvard Business Review article “One Number You Need to Grow”. NPS can be as low as −100 (everybody is a detractor) or as high as +100 (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of more than 50 is excellent.
Why is NPS Important?
Time after time in measuring conversion rate (as per the ActionCOACH 5-Way formula) by lead type, it is obvious that referral leads have the highest conversion rate of all lead sources. Therefore, it is extremely important for your business to deliver a great customer experience (GCE). A great customer experience will result in a high NPS. A high NPS will enable your business to have a robust and consistently effective referral system. The formula is
GCE -> HNPS -> NewCustomers -> Revenue -> Profit
Many successful ActionCOACH clients have achieved completely referral based businesses, with the ability to add as many new loyal customers as they can serve. An added bonus to a referral based business is lower customer acquisition cost and higher lifetime customer value.
How to Develop Your Net Promoter Score
At its core, NPS is derived from a single question customer survey. The question is
“On a scale of 0 to 10, how likely is it that you would recommend our company/product/service to a friend, family member or colleague?”
Those who respond with a score of 9 to 10 are called Promoters, and are considered likely to exhibit value-creating behaviors, such as buying more, remaining customers for longer, and making more positive referrals to other potential customers. Those who respond with a score of 0 to 6 are labeled Detractors, and they are believed to be less likely to exhibit the value-creating behaviors. Responses of 7 and 8 are labeled Passives, and their behavior falls in the middle of Promoters and Detractors. The Net Promoter Score is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. For purposes of calculating a Net Promoter Score, Passives count towards the total number of respondents, thus decreasing the percentage of detractors and promoters and pushing the net score towards zero.
There are a variety of thoughts within the NPS consulting industry as to:
- When to survey, and how often?
- Types of surveys – relationship vs. transactional
- Additional questions (if any), how many, what should they be?
- How many people should be surveyed?
- Format of the survey
There are many resources available to enhance your understanding and implementation of NPS. This blog was based upon a great web article by Christian Reni
If you wish to build your business on a solid foundation of raving fans who are both very loyal and who consistently refer new customers, NPS is an essential part of your toolkit. My colleagues and I at ActionCOACH can assist you in building and implementing this important business building strategy.