What is NPS and why it is the secret sauce for success?

No matter what era or domain, businesses that satisfy their customer needs efficiently will achieve better success in the market. We can clearly see that customer satisfaction is a critical component that determines a business’ ability to succeed in the market. In the current era, businesses use digital tools to monitor customer service and track customer experiences efficiently, and identify opportunities to increase customer satisfaction. With a host of tools and metrics available in the customer service field, businesses should concentrate on the right metric to ensure the best results. It is much more beneficial to have a single definitive metric that could replace a host of confusing metrics, and NPS (Net Promoter Score) is one of those definitive metrics.

What is NPS?

As its name suggests, Net Promoter Score can be defined as the number of customers who are willing to promote the business/product/service to other potential customers. In short, it is a clear reflection of customer satisfaction as only loyal customers would turn into promoters. The metric was first identified by Fred Reichheld, a Bain & Co. partner, in 2003, and it is widely acknowledged as a powerful indicator of a business’ customer satisfaction. This is because of the fact that this simple metric can help businesses efficiently understand a customer’s experience and his/her perception. And, did we mention that it is one of the simplest metrics to add. Businesses need to just list out a single question ‘On a scale of one-to-ten, how likely are you to recommend our (business/product/service) to your friends and family?’

How to calculate NPS?

After listing out the question, businesses can segregate its customer base based on the answers received. This forms the basis of your NPS metric. In short, customers can be categorized into three broad ranges

• Detractors – Customers that gave a rating of 1-6 are grouped into detractors. They are unhappy/unsatisfied customers who are more than unlikely to recommend the business to others.

• Passives – Customers who have given a rating of 7-8 are grouped into passives. They are customers who are neither unhappy nor happy with the business. There is a decent chance that they might recommend the business but it is not a guarantee.

• Promoters – Customers who answer 9-10 are promoters. This is the category to concentrate as most of these customers are very happy with the service and are highly likely to recommend the business to other people (friends/family/colleagues). After categorization, businesses should subtract the detractors from the promoters to get the NPS score. The NPS score can range from -100 to 100, and a higher score indicates higher customer satisfaction. It is well-known that businesses that have scores that are above 50 have significantly higher chances to grow and succeed.

Why is it important?

The fact that Net Promoter Score (NPS) is simple yet impactful is one of the main reasons for its popularity. However, that is not the only plus point as the metric provides several advantages to businesses in all domains.

• Even in the current digital world, most businesses rely on word-of-mouth marketing to reach new customers. Since there are no direct metrics to track the same, it is tough to know the exact amount of referrals that customers will be willing to make. With NPS, businesses will gain the ability to measure word-of-mouth marketing. As the number of promoters increase, so would the number of referrals.

• As mentioned earlier, NPS directly translates to customer loyalty. By measuring NPS on a daily basis, businesses will be able to actively gauge customer satisfaction and identify customer service trends. It will also show businesses which customer service/marketing activity works and which does not.

• Businesses can also quantify their business growth by benchmarking their NPS score. By comparing the NPS score with the average NPS score in the industry, businesses can understand if they are on the right track. They can also use this to increase the brand reputation and attract more customers.

• NPS also has the ability to align the whole business towards a single goal. Since NPS represents customer satisfaction, businesses can set one simple goal ‘Increasing the NPS’ and unite all the teams to work towards the same.

As mentioned throughout the article, Net Promoter Score (NPS) is a critical customer service metric and it provides huge benefits to businesses from all sectors. Since NPS is simple and easy to calculate when compared to other complex metrics, we urge businesses to start using it and gain superior insights. In conclusion, we sincerely hope that businesses can use NPS and thrive in their respective markets.