What is NPS and What Does it Mean for Your Business?

By Kai Crow
on 31 March 2017

Customers who aren’t satisfied leave…And there are only so many customers you can lose before your company bottoms out.

So wouldn’t it be awesome if you had a way to precisely measure customer satisfaction levels, so that you can easily work out if your customers are happy?

In fact, wouldn’t it be even better if you had a way to figure out why customers are unhappy and therefore likely to leave?

That’s where Net Promoter Score (NPS) surveys can come to the rescue.

Using NPS surveys –  you can achieve all of the above and more.

This post is the first in a eleven part series, where we’ll cover everything you need to know about NPS surveys and ultimately, how you can improve customer service, success and satisfaction.

Each post in this series will be given a different ‘belt’ depending on its level of NPS and customer satisfaction mastery, sort of like what you’d find in Karate.

This post is White belt, but by the end of this series, you’ll be reading stuff that is Chuck Norris, Black Belt level.

With that being said – let’s get started!

How do you know if your customers are satisfied?

If someone were to ask you, right now, how satisfied your customers are  – could you tell them?

And if so – could you provide an accurate answer?

If you’re like most, you might be able to guess, but you probably couldn’t provide a solid answer.

Should that be the case, what can you do then to actually figure out how satisfied your customers are?

Sure, you could use focus groups or market research – but that stuff doesn’t really work anymore and people have become immune to it.

Plus, would you consider a focus group to really be a representative sample of your entire customer base?

Probably not.

Therefore, if you want to truly understand how satisfied your customers are, you need a new approach.

An approach that will provide deep and accurate insights, of which are representative of your entire customer base – an approach that looks a lot like an NPS survey.

How NPS Surveys Work

NPS surveys, allow for you to quantify exactly how satisfied/unsatisfied your customers are, as well as why they’re satisfied/unsatisfied.

NPS feedback is gathered using a survey that asks two simple questions – 

  1. How likely are you to recommend [Your company] to friend or colleague on a scale of 1-10?
  2. What is the most important reason for your score?

Here’s an example

NPS survey asking questionNPS survey question

Note: People are more likely to answer surveys that are simple, so, if you want to, you can just ask the first question and the second one as a follow up.

You then categorize people into three groups, based on the number (score) they selected.

People who select a score of 9-10 are known as ‘Promoters.’

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

Those who select a score of 7-8 are known as ‘Passives.’

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

Those who select a score of 0-6 are ‘Detractors.’ 

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.

By categorizing people into groups you can then create relevant, individualised customer service approaches for each group.

The qualitative feedback provided, in the form of a comment, also gives you a chance to learn exactly what’s keeping customers unhappy and therefore what changes needed to be made.

Why Should You Implement NPS Surveys?

So now that you know what NPS surveys are – let’s take a look at why they’re one of the better ways of measuring customer satisfaction.

NPS Provides You with a Way to Reliably ‘Benchmark and Standardize’ Customer Satisfaction.

NPS surveys are reliable because they’re designed to report only on customer satisfaction levels – and nothing else.

This is opposed to measuring customer satisfaction using revenue or retention numbers, for example.

After all, high revenue figures can be indicative of a great sales team, but not necessarily of a company with a great product that meets customer needs.

In addition, NPS data provides you with a standardized way to measure how customers feel about your brand, in the form of a ‘score.’

Because you’re given a score, it’s now easier to set customer satisfaction goals.

You can now accurately, and reliably, measure your ‘before and after’ levels of customer satisfaction.

NPS Data Allows for You to Figure out the ‘Real Time’ Perception That People Have of Your Brand. 

Because NPS surveys are quick and easy,, customers don’t mind answering them right after a vital interaction with your brand – say after raising a customer support ticket.

This is powerful, because you can now instantly figure out how good of a job you’re doing when it comes to customer service and overall customer success.

And so because of this, you can quickly identify customer satisfaction problems and make fast improvements, preventing issues from snowballing and affecting other customers.

NPS Tells You How to Improve Customer Satisfaction

During an NPS survey, customers will often tell you exactly what needs to be changed, within the ‘comments’ section.

Because this information comes directly from customers, you know that if you act on what’s suggested, customer satisfaction levels will go up.

As a result, you’re now improving customer satisfaction levels using credible insights from your customers – and not from by using some quick fix tips from a random blog post.

NPS Data Provides Precise Feedback as to Where Customer Satisfaction Problems Exist

NPS data allows for execs to see how different departments are doing in relation to one another, when it comes to customer service.

Having this kind of information makes it easier to spot where customer satisfaction problems are originating from within the company.

This makes it easier to allocate resources dedicated to improving the customer experience.

NPS Data Can Help Maximise Referrals

Using NPS data, you can identify customers that are most likely to generate referrals (the Promoters) and thereby ask them to join a referral program.

Customers generated through referrals tend to be some of the best customers.

In fact, one study found that customers acquired through referrals, generated 25% higher profit margins and were 18% less likely to leave.

NPS Data Helps Improve Customer Retention and Profitability

For the most part, the metric that really matters in a business is profit.

One of the biggest drivers of profit, is customer retention and a 5% increase in customer retention has the power to improve profits by as much as 95%

NPS surveys can help improve customer retention rates, because they allow for you to figure out why customers are leaving.

Using what you learn, you can then implement initiatives that’ll tackle the factors causing people to leave – therefore reducing churn and raising retention.

NPS Data Can Help Keep Customer Acquisition Costs Under Control

According to one piece of research, the cost of acquiring a new customer can be 25 times higher, than that of keeping an existing customer.

Though it can be a good idea to generate revenue from existing customers, eventually your company will need to attract new customers, in spite of the associated costs.

Thankfully, with the help of NPS data, customer acquisition costs can be made a lot more affordable.

That’s because with the help of NPS data, the following becomes true –

  1. Marketing ROI rises and it becomes ‘cheaper’ to acquire customers.

After acting on NPS feedback, marketing campaigns are now likely to generate an increased quantity of ‘loyal’ customers (because you’ll know how to create loyal customers based on NPS data).

Loyal customers spend more money with a company.  So, if you can generate an increased number of loyal customers, per marketing campaign, marketing campaigns will now generate more revenue.

  1. You can now potentially afford to spend more than your competitors to acquire customers.

Because NPS data helps you to raise the lifetime value of customers, you can afford to spend more to acquire customers. This is important when you consider that it could help you outspend competitors – thereby giving your company an edge.

The Importance of 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.

Even though NPS tracking can be incredibly helpful –  tracking NPS data just for the sake of it, isn’t going to do your company much good.

Plus, if you haven’t established a strong connection between improved NPS scores and the improvement of certain outcomes or KPIs, there’s no point in making higher NPS scores the end goal.

So, before you consider implementing an NPS initiative, think about exactly what you want to achieve.

For instance, do you want to…

  • Reduce customer churn?
  • Increase customer happiness (be sure to clarify exactly what this means)?
  • Improve engagement with your product?
  • Reduce refunds?
  • Increase referrals?
  • Increase revenue from repeat customers?

Don’t worry if you’re not sure how you’re going to achieve these goals.

You can figure all that out once you start to get some data from your NPS surveys. As mentioned, the comments and scores from your NPS surveys will provide valuable insights you can act upon, in order to achieve your desired goals.

It’s worth mentioning that you should be flexible in how you approach your goals as you might need to change them, after reviewing NPS data.

For instance, if your goal is to increase referrals, you need to make sure that you have plenty of ‘Promoters’ to approach in the first place.

However, if after conducting an NPS survey you find that you don’t have many Promoters, then a referral program probably isn’t going to be as impactful towards revenue numbers as you’d like.

Therefore, pursuing the goal of increasing referrals might not be the best use of resources for the company, at this moment in time.

Because of this, it might better to set another goal that will help make your ‘top level goal ‘of increasing referrals, more impactful later on down the line.

For instance, you might prioritize the improvement of ‘customer happiness’ instead, of which will eventually lead to more Promoters, of whom will help increase referrals.

So take some out define what ‘success’ looks like, should you implement an NPS initiative in the company.

Once you do, your NPS implementation program will have a sense of direction.

Conclusion

In the first of this eleven part journey to NPS and customer satisfaction mastery, you’ve learned exactly what NPS surveys are, and how they can help you track customer satisfaction with precision.

You also found out why it is important to set goals, that go beyond raising NPS scores.

In the next part, we’re going to explore how you can achieve executive buy in and visibility, in relation to NPS, so that there will be companywide adoption of the approach.

Until then…Stay tuned!

Customers who aren’t satisfied leave…And there are only so many customers you can lose before your company bottoms out.

So wouldn’t it be awesome if you had a way to precisely measure customer satisfaction levels, so that you can easily work out if your customers are happy?

In fact, wouldn’t it be even better if you had a way to figure out why customers are unhappy and therefore likely to leave?

That’s where Net Promoter Score (NPS) surveys can come to the rescue.

Using NPS surveys –  you can achieve all of the above and more.

This post is the first in a eleven part series, where we’ll cover everything you need to know about NPS surveys and ultimately, how you can improve customer service, success and satisfaction.

Each post in this series will be given a different ‘belt’ depending on its level of NPS and customer satisfaction mastery, sort of like what you’d find in Karate.

This post is White belt, but by the end of this series, you’ll be reading stuff that is Chuck Norris, Black Belt level.

With that being said – let’s get started!

How do you know if your customers are satisfied?

If someone were to ask you, right now, how satisfied your customers are  – could you tell them?

And if so – could you provide an accurate answer?

If you’re like most, you might be able to guess, but you probably couldn’t provide a solid answer.

Should that be the case, what can you do then to actually figure out how satisfied your customers are?

Sure, you could use focus groups or market research – but that stuff doesn’t really work anymore and people have become immune to it.

Plus, would you consider a focus group to really be a representative sample of your entire customer base?

Probably not.

Therefore, if you want to truly understand how satisfied your customers are, you need a new approach.

An approach that will provide deep and accurate insights, of which are representative of your entire customer base – an approach that looks a lot like an NPS survey.

How NPS Surveys Work

NPS surveys, allow for you to quantify exactly how satisfied/unsatisfied your customers are, as well as why they’re satisfied/unsatisfied.

NPS feedback is gathered using a survey that asks two simple questions – 

  1. How likely are you to recommend [Your company] to friend or colleague on a scale of 1-10?
  2. What is the most important reason for your score?

Here’s an example

NPS survey asking questionNPS survey question

Note: People are more likely to answer surveys that are simple, so, if you want to, you can just ask the first question and the second one as a follow up.

You then categorize people into three groups, based on the number (score) they selected.

People who select a score of 9-10 are known as ‘Promoters.’

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

Those who select a score of 7-8 are known as ‘Passives.’

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

Those who select a score of 0-6 are ‘Detractors.’ 

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.

By categorizing people into groups you can then create relevant, individualised customer service approaches for each group.

The qualitative feedback provided, in the form of a comment, also gives you a chance to learn exactly what’s keeping customers unhappy and therefore what changes needed to be made.

Why Should You Implement NPS Surveys?

So now that you know what NPS surveys are – let’s take a look at why they’re one of the better ways of measuring customer satisfaction.

NPS Provides You with a Way to Reliably ‘Benchmark and Standardize’ Customer Satisfaction.

NPS surveys are reliable because they’re designed to report only on customer satisfaction levels – and nothing else.

This is opposed to measuring customer satisfaction using revenue or retention numbers, for example.

After all, high revenue figures can be indicative of a great sales team, but not necessarily of a company with a great product that meets customer needs.

In addition, NPS data provides you with a standardized way to measure how customers feel about your brand, in the form of a ‘score.’

Because you’re given a score, it’s now easier to set customer satisfaction goals.

You can now accurately, and reliably, measure your ‘before and after’ levels of customer satisfaction.

NPS Data Allows for You to Figure out the ‘Real Time’ Perception That People Have of Your Brand. 

Because NPS surveys are quick and easy,, customers don’t mind answering them right after a vital interaction with your brand – say after raising a customer support ticket.

This is powerful, because you can now instantly figure out how good of a job you’re doing when it comes to customer service and overall customer success.

And so because of this, you can quickly identify customer satisfaction problems and make fast improvements, preventing issues from snowballing and affecting other customers.

NPS Tells You How to Improve Customer Satisfaction

During an NPS survey, customers will often tell you exactly what needs to be changed, within the ‘comments’ section.

Because this information comes directly from customers, you know that if you act on what’s suggested, customer satisfaction levels will go up.

As a result, you’re now improving customer satisfaction levels using credible insights from your customers – and not from by using some quick fix tips from a random blog post.

NPS Data Provides Precise Feedback as to Where Customer Satisfaction Problems Exist

NPS data allows for execs to see how different departments are doing in relation to one another, when it comes to customer service.

Having this kind of information makes it easier to spot where customer satisfaction problems are originating from within the company.

This makes it easier to allocate resources dedicated to improving the customer experience.

NPS Data Can Help Maximise Referrals

Using NPS data, you can identify customers that are most likely to generate referrals (the Promoters) and thereby ask them to join a referral program.

Customers generated through referrals tend to be some of the best customers.

In fact, one study found that customers acquired through referrals, generated 25% higher profit margins and were 18% less likely to leave.

NPS Data Helps Improve Customer Retention and Profitability

For the most part, the metric that really matters in a business is profit.

One of the biggest drivers of profit, is customer retention and a 5% increase in customer retention has the power to improve profits by as much as 95%

NPS surveys can help improve customer retention rates, because they allow for you to figure out why customers are leaving.

Using what you learn, you can then implement initiatives that’ll tackle the factors causing people to leave – therefore reducing churn and raising retention.

NPS Data Can Help Keep Customer Acquisition Costs Under Control

According to one piece of research, the cost of acquiring a new customer can be 25 times higher, than that of keeping an existing customer.

Though it can be a good idea to generate revenue from existing customers, eventually your company will need to attract new customers, in spite of the associated costs.

Thankfully, with the help of NPS data, customer acquisition costs can be made a lot more affordable.

That’s because with the help of NPS data, the following becomes true –

  1. Marketing ROI rises and it becomes ‘cheaper’ to acquire customers.

After acting on NPS feedback, marketing campaigns are now likely to generate an increased quantity of ‘loyal’ customers (because you’ll know how to create loyal customers based on NPS data).

Loyal customers spend more money with a company.  So, if you can generate an increased number of loyal customers, per marketing campaign, marketing campaigns will now generate more revenue.

  1. You can now potentially afford to spend more than your competitors to acquire customers.

Because NPS data helps you to raise the lifetime value of customers, you can afford to spend more to acquire customers. This is important when you consider that it could help you outspend competitors – thereby giving your company an edge.

The Importance of 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.

Even though NPS tracking can be incredibly helpful –  tracking NPS data just for the sake of it, isn’t going to do your company much good.

Plus, if you haven’t established a strong connection between improved NPS scores and the improvement of certain outcomes or KPIs, there’s no point in making higher NPS scores the end goal.

So, before you consider implementing an NPS initiative, think about exactly what you want to achieve.

For instance, do you want to…

  • Reduce customer churn?
  • Increase customer happiness (be sure to clarify exactly what this means)?
  • Improve engagement with your product?
  • Reduce refunds?
  • Increase referrals?
  • Increase revenue from repeat customers?

Don’t worry if you’re not sure how you’re going to achieve these goals.

You can figure all that out once you start to get some data from your NPS surveys. As mentioned, the comments and scores from your NPS surveys will provide valuable insights you can act upon, in order to achieve your desired goals.

It’s worth mentioning that you should be flexible in how you approach your goals as you might need to change them, after reviewing NPS data.

For instance, if your goal is to increase referrals, you need to make sure that you have plenty of ‘Promoters’ to approach in the first place.

However, if after conducting an NPS survey you find that you don’t have many Promoters, then a referral program probably isn’t going to be as impactful towards revenue numbers as you’d like.

Therefore, pursuing the goal of increasing referrals might not be the best use of resources for the company, at this moment in time.

Because of this, it might better to set another goal that will help make your ‘top level goal ‘of increasing referrals, more impactful later on down the line.

For instance, you might prioritize the improvement of ‘customer happiness’ instead, of which will eventually lead to more Promoters, of whom will help increase referrals.

So take some out define what ‘success’ looks like, should you implement an NPS initiative in the company.

Once you do, your NPS implementation program will have a sense of direction.

Conclusion

In the first of this eleven part journey to NPS and customer satisfaction mastery, you’ve learned exactly what NPS surveys are, and how they can help you track customer satisfaction with precision.

You also found out why it is important to set goals, that go beyond raising NPS scores.

In the next part, we’re going to explore how you can achieve executive buy in and visibility, in relation to NPS, so that there will be companywide adoption of the approach.

Until then…Stay tuned!


About the author

Kai Crow

Kai is based in our Auckland, New Zealand office and while his name means ‘food’ in the New Zealand native language of Maori he is not actually edible. When he’s not keeping our sales and marketing stuff running, Kai’s out riding a mountain bike or running down the beach with his two dogs, Rufus and Sparky.

Other posts by Kai Crow

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NPS is a registered trademark, and Net Promoter Score and Net Promoter System are service marks, of Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.