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Calculating your NPS® to understand Customer Loyalty
CloudCherry | Featured | September 26, 2016
Deceptively simple yet endeared by the world. The Net Promoter Score® is the standard metric today for any business to track and measure customer loyalty. In its purest form, the NPS® system requires you to ask your customers a single question:
“How likely are you to recommend our organization/brand/product to a friend or colleague?”
While there are many other types of customer satisfaction surveys, the Net Promoter Score goes beyond them because it doesn’t just ask if someone is satisfied with a business. It asks if that customer is happy enough with the brand to recommend it to someone else, which is, essentially, word-of-mouth advertising. In essence, Net Promoter Score calculation allows you to determine the fraction of customers loyal to your brand by finding out whether or not they’re willing to vouch for you.
The Net Promoter System® is by no means perfect. Like any system, it has its pros and cons, but studies, including some conducted by the Harvard Business Review, have discovered that there is a strong correlation between NPS and business growth. Companies with a good NPS® – i.e. with a significant number of advocates – tend to also generate more revenue.
The perks of measuring NPS® are surely enticing. Now, let’s take a look at the NPS® model as a whole and how you can calculate your Net Promoter Score.
The formula behind Net Promoter Score calculation is just as simple as the survey and while it may seem a little complicated at first, you’ll soon realize that it cannot be easier!
Understanding the NPS® Scale
The first step to calculating your NPS® is understanding the scale. It’s quite simple. The survey consists of one question, as mentioned above, but instead of a simple yes or no answer, respondents can answer on a scale of 0 to 10, where 0 is very unlikely to recommend and 10 represents will definitely recommend.
Depending on the score they give your brand, your customers can be grouped into detractors, passives and promoters. Detractors are those customers who are displeased with your brand and are not likely to recommend you to other people. These are the customers you will need to focus your customer experience improvement initiatives on later down the line because they represent the highest risk of defection to a competing brand.
Passives are customers who aren’t displeased, but aren’t pleased either. They really couldn’t care less, one way or the other.
Promoters are your loyal customers. These are the people who are not only willing to recommend your brand, but already do so quite often. They are the customers most likely generating a large portion of your income and the ones who have the highest lifetime value for your organization. Ideally, you want to get as many “Promoters” as you can.
In terms of scores, the breakdown is as follows:• Customers providing a score from 0 to 6 are detractors;• Those who enter a 7 or 8 are passives;• Customers who choose a 9 or 10 fall in the promoters category.Start measuring your NPS today!
The first step is to work out how many of your customers fall into each category. So, let’s say you have the following data:• Promoters – 69 customers• Passives – 10 customers• Detractors – 17 customers
Since NPS® is expressed as a percentage, you will now have to divide the total in each category and by the total number of customers you surveyed.
Thus, in our example, we have a total of 96 responses. To calculate the percentage of promoters, we divide 69 by 96 and then multiply by 100 to give us the percentage, which works out to 71.82% promoters. By the same formula, we have 10.42% passives and 17.76% detractors.
Once you have the percentages, deduct the percentage of detractors from the percentage of promoters, which will give you your NPS® score. In this case, it would be 61.4%.
Now, this is quite a good score for any industry, but to see how well you are doing, you can benchmark it against other competitors in your sector. Keep in mind that your NPS® can also be negative as the score ranges from -100 to 100.
Once you know how the Net Promoter Score calculation works, you have to understand when and where to ask the question and how to phrase it accordingly. To help with this, NPS surveys can be classified into Relationship NPS Surveys and Transactional NPS Surveys.
A Relationship NPS Survey is used to measure a customer’s overall loyalty with an organization. Usually, Relationship NPS Surveys are sent to customers on a periodic basis – every couple of months, once in six months, and sometimes, also after following a series of purchases, etc. These surveys help an organization measure loyalty over a period of time, and track the changes in customer behaviour based on interactions.
This is how a Relationship NPS survey question looks like:
“Based on your experience from choosing your item till delivery, how would you rate our organization on a scale of 0 to 10?“
A Transactional NPS Survey is, however, more short-sighted and is used to understand a customer’s loyalty at the end of every interaction/touchpoint. These surveys can be used to find out what the customer thinks about every single touchpoint and how it influences his/her connection with an organization. The purpose of these Transactional NPS Surveys is to identify loopholes across each specific customer touchpoint.
This is how a Transactional NPS survey question looks like:
“Based on your billing experience, how would you rate our organization on a scale of 0 to 10?“
While there are many programs you can use to calculate and understand your NPS®, it does help to understand how the formula works, the types of surveys you can run and the questions you can ask so that you are aware as to how the entire system works. And it’s certainly worth surveying your customers at least every quarter to see how your NPS® is evolving based on the changes your business is undertaking to try to turn more detractors into promoters.