Whether it’sit’s a move, a new job or the next vacation – most of us will probably take a similar approach when making such decisions: We search the Internet for information and ask friends and family for recommendations.
In a study by Talk Triggers, the “”Chatter Matters: The 2018 Word of Mouth Report “”, 83% of respondents said they trusted recommendations from friends and family members more than any form of advertising. To be able to measure these values, the Net Promoter Score, or NPS for short, is used.
Who uses the Net Promoter Score? Such numbers are of great interest to companies from all industries because customers particularly like to share negative experiences. Companies need to collect customer feedback and identify problem areas as quickly as possible to make improvements.
The Net Promoter Score is a measure of customer satisfaction.
Today, it’sit’s easier than ever to share your opinion online with a large number of people. And this is where the NPS comes in.
In this article, we look at the following topics:
1) What is the NPS?
2) How is the NPS calculated?
3) Why is the NPS so important?
Net promoter score: definition
The Net Promoter Score is a benchmark for customer satisfaction. It measures how likely it is that customers would recommend your brand or offer.
How is the Net Promoter Score calculated?
To determine the NPS, you first need to ask your customers. This question is mostly used for this: “”How likely is it on a scale from 0 to 10 that you recommend the product/brand to a friend or colleague?”” The answers to this question can be divided into three groups:
- Advocate: Customers who vote on the 9-10 scale
- Passive: Customers who choose on the 7-8 scale
- Critics: Customers who choose 0-6 on the scale
The names of the individual categories make it clear how the respective customers are likely to behave:
Advocates (also: promoters ) are enthusiastic, loyal customers who are very likely to tell their friends and relatives positive things about your brand and thus help you win new customers.
Passives are more of a tie. You could become an advocate – but also switch to the competition.
Critics (also: detractors ) are dissatisfied customers who may not have been your customers for long. And what’swhat’s more, there is a risk that they will damage your brand if they tell others about their negative experiences.
TO CALCULATE THE NET PROMOTER SCORE, SUBTRACT THE PERCENTAGE OF CRITICS (CUSTOMERS WHO WOULD NOT RECOMMEND YOUR COMPANY) FROM THE PERCENTAGE OF ADVOCATES (CUSTOMERS WHO WOULD RECOMMEND YOU).
Calculate how many answers you got in each of these two categories and subtract the detractors from the promoters. This gives you value or a measure of the likelihood that the average customer will recommend you. The group of passives is not included in the calculation because it is not clear whether they would pass on positive or negative opinions.
It is essential to have more advocates than critics – ideally, a lot more.
An exemplary calculation of the NPS
Suppose you survey 100 customers . With 40% critics and 50% advocates, your NPS would be 10 (50% – 40% = 10).
If, however, you had only 20% critics for the same number of respondents, your NPS would be 30. This would correspond to a 20% higher probability that your customers would recommend you.
If you regularly interview your customers and find out how they talk to friends and relatives about your company, it will be easier for you to find out where there are weak points and opportunities for improvement. It is therefore recommended that you allow customers to provide comments and feedback. This gives you a good starting point to tackle aspects that customers may be dissatisfied with and to improve the customer experience.
For companies to achieve a good net promoter score, they should orient themselves on specific benchmarks.
Why is the Net Promoter Score so important?
With the help of the customer NPS, companies in every industry have the opportunity to assess customer loyalty – and the likelihood that their customers will recommend them. This value can also be used to determine how likely customers are to migrate, i.e. not to renew their subscription, not to renew a product or to buy from another company.
In general, it is not only significantly cheaper to bind existing customers to a company than to win new ones, but also more profitable. With only 5% more customer loyalty, a sales increase of 25 to 95% can be achieved.
As you work to attract and convert new customers, keep in mind that retaining existing customers will pay off even more.
It is therefore essential to identify those customers who are at risk of being lost to the company. Here, the customer NPS offers a prominent key figure, especially if you keep track of how it develops over time.
Changes in the overall NPS indicate how likely the average customer is to recommend the brand or product. Changes in the individual values, broken down by advocates, passives and critics, can show a customer success team in which direction the overall NPS is developing.
For example, if the number of critics decreases and the number of passives increases, this can be a sign of positive development in customer perception. However, a decline in advocates and an increase in liabilities can indicate that there is an increased risk of customer churn and negative reviews.
A low Net Promoter Score is a warning sign.
Changes in the customer NPS can be an indicator – or a warning sign – of current customer satisfaction and the risk of customer churn.
For example, SAP, a provider of software solutions, was able to use improved and more regular NPS surveys to find out what had led to a lower rating of customers and which aspects should be improved accordingly. The new and significantly worse NPS has shown that only 27% would recommend the company. According to the Handelsblatt, this was due to the digital conversion of the company and the subsequent complex projects and portfolios. With this feedback, SAP was able to initiate further measures to improve customer satisfaction.
Find opportunities for improvement.
It happens that customers choose a low value on the scale, maybe even a 0, in the NPS question. Of course, this is uncomfortable, especially if it happens more often. But you can also see something positive in it, namely the opportunity to improve your product or service according to customer feedback.
Therefore, you should allow your customers to justify a bad rating in your NPS surveys. When customers point out specific problems, you should try to resolve them to improve the customer experience for your product or service.
Not every feedback will be helpful, but you will undoubtedly receive information about specific errors, poor user experience or a sparse conversation with a customer service representative. And these tips are an excellent way to talk to the responsible team about opportunities for improvement.
Referral marketing is more effective than other marketing methods.
Companies can use the customer NPS to see how likely they are to be recommended by customers – and we have already seen how important these recommendations are.
- 71% of social media users who had a positive experience with a brand said they were likely to recommend the brand to friends and family.
- Also, over half (51%) of users trust the recommendations of influencers.
- Customers won based on recommendations have a 16 to 25% higher lifetime value – and a higher ROI – than other customers.
Businesses can benefit from referral marketing by asking for case studies, testimonials, and online reviews that can help them attract new potential customers. In turn, companies can reward customer loyalty with brand ambassador and “incentive” programs – for example, with vouchers, promotional items or discounts. Referral marketing can, therefore, be a symbiotic relationship between brands and customers. However, this only works with satisfied customers. The NPS can help you identify these satisfied customers.
A study from 2019 showed that in online marketing, the increase in customer satisfaction by one point (on a scale from 0 to 10) increased the conversion rate from visitors to a website to buyers by 3.9%. The number of cancellations among customers who are considered promoters is also significantly lower than that of detractors or passively satisfied customers.
An optimized NPS promotes customer satisfaction.
If you have analyzed your NPS data and (hopefully) have found many satisfied advocates, you should not sit back and relax. Seek dialogue with satisfied customers. Perhaps you can include them in a referral program so that they remain happy and also attract additional customers for you.