A metric used by almost every business, every day. But ... is it actually as useful as they think it is?
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The best promotion your company can get is word-of-mouth referrals. This means your customers recommend your services to other people.
Since those other people are most likely friends, family, or close acquaintances of your customer, the recommendation your customer makes to them is more potent than pretty much any form of advertising.
And because of how important generating word-of-mouth referrals is to any kind of business, it is important for businesses to track it.
But how can you track something that happens outside of your business’s reach?
NPS helps you with that. And this is the reason NPS is regarded as a standard, default metric of how loyal your customers are.
But while it isn’t a perfect metric for tracking word-of-mouth (it has its flaws — as we will see below), it does provide a meaningful estimate that businesses can act upon (as we will also see below).
By definition, NPS means “net promoter score”. It tells you how well your business is acquiring positive word of mouth referrals.
Here is how you can track it:
NPS is tracked by 1 simple question: This question is: “How likely are you to recommend us to a friend or colleague?” The customer answers by picking a number from 0 to 10, with 0 being ‘there’s no chance I would recommend you’, and 10 being ‘I would absolutely recommend you’.
Based on the customer’s response, they are then sorted into one of the three categories, each representing how likely the customer is to spread word of mouth.
The 1st group is called ‘promoters’. These are the customers who selected a 9 or a 10.
They had a good experience and will likely return and do business with you again. They are pleasant customers.
The 2nd group is called ‘passives’. They selected either a 7 or an 8.
Passives don’t have that many complaints and are mostly satisfied with their experience. But they are less likely to buy from you again, and less likely to recommend you. Even when they do recommend you, their recommendations aren’t nearly as good.
Members of the 3rd group are called ‘detractors’. They gave a score of 6 or less.
Detractors are unsatisfied clients. The majority of negative reviews and complaints comes from this group. Their sharp criticisms and bad attitude lower your reputation, demotivate your employees, and drive away new potential clients.
Now that you have each of your responses organized into one of the three groups (promoters, passives, or detractors), it is time to calculate your NPS.
Here’s how you do that:
First, you calculate what percentage of all of the responses falls into the promoters group, and what percentage falls into the detractors group.
Then you simply subtract the detractors from the promoters, and you get your NPS!
How to calculate the NPS index
Note that NPS can occupy any number between -100 (nobody is a promoter, everyone is a detractor) and +100 (everyone is a promoter, no one is a detractor).
In practice, if you can get your NPS to 50 or above, you are doing very well.
NPS isn’t a perfect metric for measuring word-of-mouth.
How so?
The question asks them what they think they would do, but not what they did do.
And, as we know quite well from our everyday lives, thinking about doing something, and actually doing it aren’t the same thing.
Here’s what I mean: Let’s say I just bought a new computer at my local computer shop. The employee at the shop was quite helpful and made a good effort to find the computer I described I wanted.
1 day after completing the purchase, the computer shop emails me a quick question, asking me how likely I am to recommend their shop to a friend.
Now I am in a dilemma. I won’t recommend the shop out of the blue, but if a friend of mine is looking for a place to buy a new PC, I would be happy to recommend this shop to them.
So, how do I answer the question? I don’t know.
But, keep in mind that no one metric or index is perfect. You can find flaws in all of them if you look hard enough.
The two flaws I outlined above skew the results a little bit to the ‘promoter’ side of the range, they don’t invalidate that NPS is still a useful metric — it’s just that if you want to see the full picture, you can’t rely only on NPS, but use it in a combination of other metrics (like CSAT, CES, etc.) and other feedback questions that are based on the particular interaction you would like to know more about.
Compared to ‘promoters’ and ‘passives’, ‘detractors’ provide you with by far the most information.
That’s because if someone says they won’t recommend you under any circumstances, this is likely a signal that there is a real bottleneck somewhere hurting your business.
So, to use the most out of your NPS, send follow-ups to all of the ‘detractors’, asking them to clarify their answer and possibly offer them a make-up gift to let them know their opinion matters to you.
And by acting quickly, you can resolve issues before they grow into bigger problems, making your brand stronger and stronger in the meantime.
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