Net Promoter Score (NPS) is a key metric that companies can use to measure a customer’s perception of their brand. It’s often looked at in correlation with revenue growth. Over two-thirds of Fortune 1000 companies now use the NPS system as a way to keep track of their customer engagement and loyalty.
Having a good NPS means that a higher percentage of customers are likely to recommend your products or services to their network. As every smart marketer knows, referrals are a goldmine for business growth.
The higher your Net Promoter Score numbers, the better it is for your acquisition metrics, retention, and overall recurring revenue.
Why is NPS an Important Metric?
Developed by New York Times bestselling author and business strategist Fred Reichheld in 2003, the Net Promoter Score system was based on intensive research around loyalty marketing.
By measuring customer satisfaction and retention, Reichheld was able to draw conclusions on the relationship between customers and the growth of companies. He found that organizations showing sustainable, profitable growth had NPS scores that were double those of the average company.
Customers are, of course, the core of any business, so paying attention to them is vital to your success. Listening to your customers and actively working to solve their problems and improve your services goes a long way when it comes to building customer trust and brand loyalty.
By providing ample opportunities for your customers to have an open dialogue with your company (e.g. by phone, email, on social media, through surveys), it allows you to leverage positive feedback and take action on any negative feedback that comes in.
Keeping your customers happy is the foundation of an accelerated growth rate and healthy NPS. Reichheld himself noted that companies with high NPS scores could grow at twice the rate of other businesses.
What Makes a Good NPS?
The NPS score rating ranges from -100 to 100. Anything above the median of 0 is deemed to be a “good” NPS.
Reichheld considers scores of 50 – 80 to be outstanding. If your NPS falls in this range, you’re keeping good company with the likes of Tesla, Porsche, Apple and Netflix.
For many companies however, the reality is that they will fall in the NPS range of 5 – 10. There are variations in average scores by industry though. As an example, property management companies usually score -3, so if you can manage a 0 score, you’re already beating the competition.
If your NPS is in the negative range, this gives you a great opportunity to start reaching out to your customers and encouraging them to engage more with you. By listening to their feedback you can pinpoint what’s not working from a customer perspective. Even small changes to your sales and customer support processes can have an impact on your NPS measurements.
How to Calculate Net Promoter Score
If a customer gives you an NPS of 6 or less, these are the people that you mark as “detractors.” Customers that give you 7 or 8 should be considered “passive,” and those who rate you 9 or 10 are your valuable “promoters.”
You can calculate your company’s Net Promoter Score by subtracting the percentage of your detractors from the percentage of your promoters.
Gathering NPS Data
Calculating your NPS starts with getting in touch with your customers. This begins from the moment of onboarding.
One of the best ways to gather data is by carrying out regular customer surveys. This should be done at least every 12 months, or every quarter if it’s feasible for your company.