Understanding Net Promoter Score: How Does it Work?

We all want happy customers. They're the sign of a job well done, a reason to feel great about a long day's work... and also they’re a core revenue stream. Happy customers stick around, and a 5% increase in customer retention has the power to improve profits by as much as 95%. 

But how can you know if your customers are actually satisfied with your business?

You ask. You ask tastefully, strategically, and often. And when you get responses, you take them seriously and then act on what you've learned.

This is this Net Promoter Score process in a nutshell. You may have heard of NPS because many of the world's most successful brands use it to understand themselves and their customers.

Here's a quick overview of the metric and how it's used.

What is Net Promoter Score?

Net Promoter Score is a metric that quantifies how satisfied (or unsatisfied) your customers are. NPS is a fundamentally simple metric that can be tailored by companies for very sophisticated understandings of customer relationships.

It collects data for this metric by sending surveys to as many individual customers as possible. The individual responses are collected into a simple equation that generates your company's overall Net Promoter Score, which will be anywhere from -100 (terrible and also rare) to +100 (perfection, which is also extremely rare).

How Does NPS Work?

To understand how NPS works, let's walk through the process of a standard NPS campaign.

Step 1: Setting Goals

Before you start out with NPS tracking, it’s important that you set some clear goals in terms of what you want to achieve, as a result of NPS implementation. Tracking NPS data just for the sake of it, isn’t going to do your company much good.

Here are some examples of goals..

• Reduce customer churn
• Improve engagement with your product
• Reduce refunds
• Increase referrals
• Increase revenue from repeat customers
  

Once you understand your goals, you can optimize the NPS survey questions and strategy to capture the most relevant data.

Step 2: Deploying The Survey

People are more likely to answer surveys that are simple, and this is as simple as it gets. The NPS Survey question usually includes two simple questions...

Question #1 – How likely are you to recommend [Company Z] to a friend or colleague, on a scale of 1-10?

The respondent chooses a numeric rating (usually by clicking on a simple linear number chart). This is the core data for the NPS.

With specific goals in mind, you might adapt the question for more precise data. For example, if you sell vacuums and you're looking to reduce refunds, you can send a survey out to people after they've received their new vacuum and ask:

"How likely are you to recommend this product to a friend or colleague, on a scale of 1-10?"

Strategy around survey deployment can be used with increasing complexity and precision, reaching customers at specific moments in their journey to understand how well your customer service is performing at every step along the way.

Question #2 – What is the most important reason for your score?

This is an open-text question. It's an opportunity to get specific insights that quantification can't capture alone. For example, if customers keep rating their experience low in Question #1 and then typing phrases like "checkout" or "shopping cart" in Question #2, you might have some unforeseen issues with the purchasing process on your website. 

Step 3: Calculating the Net Promoter Score

So you've collected a great number of survey responses. Now it's time to assign each respondent to a group based on the score they gave:

Promoters – scored 9-10

These are individuals who have high levels of customer satisfaction and would readily recommend your company to others.

Passives – scored 7-8

Individuals that are satisfied with your company, but aren’t ecstatic. These individuals are vulnerable to being snapped up by competitors.

Detractors – scored 0-6

These people aren’t happy at all. They may say negative things about your company and cause others to see your company in a negative light. 

The Net Promoter Score Equation

Count up the number of people in each group and assign the overall percentage. Let's say, for example, you collected 200 surveys, and the responses broke down like this:

• Promoters – 60 responses (or 30% of total)
• Passives  – 110 responses (or 55% of total)
• Detractors – 30 responses (or 15% of total)
  

The Net Promoter Score equation is a simple bit of subtraction:

[Percentage of Promoters] – [Percentage of Detractors] = Net Promoter Score

So, in our example: 30 - 15 = 15

Step 4: Acting On Your Net Promoter Score

The hardest part of the process is increasing your NPS. To do this, you need to understand the score and what it's telling you.

Context

Let's say your overall NPS is 15. Is that a good score? That all depends on your industry. What is the benchmark for your industry? And how is your nearest competitor scoring? If your scores are close, that means your customer satisfaction rates are competitive. But if your NPS last year was 23, an NPS of 15 could be a worrisome sign.

Analysis

You want to understand how different customers are responding, in order to understand factors in play. Segment results by geographic region, survey channel, and any pertinent demographic information. Also, search the open-text responses for common themes. What phrases are most common? Which ones correspond with positive reviews? Negative reviews? 

Make Changes

The simplicity of NPS metrics makes it very easy to share across various departments in your office. Share your NPS findings with everybody. It will give them a common language when discussing opportunities for improving customer experience. And then get to work, focusing on the areas of your business that rated low with NPS and figuring out how exactly to improve. 

Engage Your Customers

The group of Detractors might have a lot of grievances, but there’s still a chance to salvage that relationship and make some happy customers out of them. So reach out. You know who they are because you have their survey responses. On the other end of the spectrum, you can reach out to your promoters, remind them how important they are, and incentivize them to actually refer friends and family to your business.

Keep Collecting Data

The benefits of Net Promoter Score insights show their greatest riches in the long term. Now that you’ve got your NPS, keep sending out surveys, optimizing the ways you collect that data, and keeping track of how your new business strategies are playing with customers. When you collect new data on a daily basis you can see NPS evolving in real time. And one year from now you’ll have even more insights to act on.

Conclusion

Net Promoter Score works for companies who are committed to understanding their customer relationships. It's an elegantly simple metric that can be optimized at every step of the process. 

By designing survey questions that are specific but accessible, and deploying the surveys at targeted moments in the customer journey, a business can get honest insights directly from customers.

After collecting a broad range of NPS survey responses, the score is easily calculated. And that's when the real work begins: putting your score in various contexts to understand exactly what is working well in your operation and what is ripe for improvement.

By making NPS a regular part of every team's work life, company's foster a unified, quantifiable, customer-focused strategy that can be shared from the executive office to the warehouse.

At AskNicely, we set up companies with NPS platforms that make these transformations easy.