Breaking Down the Ultimate Question – NPS

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Breaking Down the Ultimate Question – NPS (Net Promoter Score)

 

First, let’s start with the very basics- what is a Net Promoter Score? Net Promoter Score was first developed by Fred Reichheld, Bain & Company and Satmetrix in 2003. Since then it has been used heavily by companies, both large and small, to assess customer satisfaction and has become an important metric for growth-driven technology businesses.

NPS – which is sometimes referred to as the “The Ultimate Question” – is a customer satisfaction benchmark that measures how likely your customers are to recommend your business to friends, colleagues, and other contacts. You can think of it as a numerical value that indicates how loyal your customers are. When you survey your customers, you present them with a simple question – “How likely is it that you would recommend [your business] to a friend or colleague” and a 0 to 10 scale, with 0 representing “not at all likely” and 10 representing “extremely likely”. Once a respondent selects a rating, many NPS surveys will also present a simple follow-up question that seeks to collect more information about WHY the respondent selected the rating they did.


Calculating Loyalty

Your actual Net Promoter Score is calculated by first segmenting your respondents into three categories based on their ratings:

  • Promoters – these are customers that select either 9 or 10
  • Passives – these are customers that select either 7 or 8
  • Detractors – these are customers that select between 0 and 6

Then to get your NPS, you take the percentage of Promoters and subtract the percentage of Detractors. NPS will fall inside a range of -100 (all Detractors) and +100 (all Promoters). In general, any positive score is good, as this means that you have more Promoters than Detractors.

Let’s take a moment to explore these three categories of respondents in a bit more detail.


Anatomy of a Promoter

Promoters are the holy grail for a business. Promoters are business builders, defined by a few key characteristics.

  • Loyal, Enthusiastic Advocates – Promoters love your business, they have a lot of good things to say about you – and they are willing to recommend you to others. That last part – willing to recommend you to others – is to reason that Promoters are so important. Word of mouth is the original marketing channel – and this oldest form of marketing also happens to be one of the most effective. According to research by McKinsey and Company, anywhere between 20% and 50% of a company’s revenue is driven by referrals and/or word of mouth. In some industries, this number can get as high as 80%.
  • Willing to Fight for You – As part of being loyal, Promoters will also fight for your brand, actively providing positive feedback when negative reviews or comments are at play. They are willing to stake their reputation on liking you, which is particularly meaningful when we think about the damage Detractors can do, (which will talk about later).
  • Very Stable – They are unlikely to leave you on a dime and they are even the ones that will be first to pay more when you increase your offering. In short, Promoters do all the things we love: they renew, they expand, they forgive, and they promote.


Anatomy of a Passive

For my money, these are the trickiest of the bunch to understand and effectively engage. Some of you are probably wondering why the NPS formula doesn’t include Passives and the short answer is – it’s because they don’t really move the needle, either up nor down. If you have a lot of Promoters, that an indicator of growth and if you have a lot of Detractors, that’s an indicator of decline. But if you have mostly Passives, that isn’t tell you much – besides the fact that you might not be doing enough.

So, what do we need to know about Passives?

  • They are Satisfied but NOT Happy – This is an important distinction. There are plenty of products that we use that we’re satisfied with – we use them consistently, some even religiously – but we wouldn’t consider ourselves a Promoter of those products. And if we were asked to recommend those products to someone else, we would be hesitant at best. And to that end, if someone came along with the same offering that was slightly more interesting in some way – better price, one or two extra nice features – we would be a definite flight risk.
  • Open to Alternatives – Much like Detractors, Passives are open to alternatives. While not as urgent as Detractors, on average you’ll see 20 – 30% of Passives churn within 180 days or so depending on your business model. If you want to be a leading company in your industry, it’s critical that you respond and address your passive customers’ needs as quickly as possible and learn what it takes to earn that recommendation.
  • Not Loyal to Your Brand – Passive customers are the quickest to switch brands as soon as something better comes along. Interesting enough, many Detractors are passionate about a brand (perhaps negatively, but that can change). Passives often just don’t care. While they’re not likely to be spreading negative experiences about you on the streets, they’re also not out singing your praises and recommending you to others. To earn their loyalty, you need to engage in meaningful discussion and show them that you’re more than just the product or service that they purchased — you’re an experience that’s not easily matched.
  • Price Sensitive – Passives generally view competitive products as one of the same, with seeing little to no discernible difference in features or benefits. That leaves only one variable for them to make decisions on — price. Unless you’ve built your model to become the low-cost leader, Passive customers will drive your business towards becoming the low margin leader. Engage with your passives, find out if they’re truly only concerned with price, almost always you’ll find out that they’re not. It just takes a bit more effort to get the answer out of them.


Anatomy of a Detractor

And finally, the dreaded Detractors.

  • Likely to Leave You (Very) Soon – Statistically speaking, up to 40 – 50% of your Detractors are going to leave you within the next 90 days (or sooner). If your goal is to reduce churn, it’s absolutely critical that you respond to them as quickly as possible (meaning immediately) and address their concerns.
  • Speak Louder than Your Promoters – According to a survey of over 3,200 random consumers, 75% of them had indicated that they be likely to share a negative experience with their friends and colleagues, while only 42% of them said they’d recommend a product or service that they enjoyed. Unfortunately the news gets worse.Psychology Today had written an article that compiled the results of a few different studies in regards to how humans receive bad information versus good. The studies had shown that we care more about the threat of bad things than we do about the prospect of good things.What it comes down to is that negative experiences can drastically outweigh the impact that positive experiences can have. That means that for every detractor you have, you need several promoters to advocate for the brand. This is one of the primary reasons why any positive NPS score (anything over 0) is considered a “good” score by NPS standards. Based on the calculation, it simply means that you have more promoters than you have detractors. The more that gap widens, the more positive bottom line impact and growth you’re going to see.
  • Likely to be Your Next Promoters – That may sound strange to hear, but generally speaking, your strongest Detractors are not all that dissimilar from your strongest Promoters. They are both vocal and passionate consumers of your product. The only difference being that, for Detractors, there is something missing from their experience. Remember that Detractors want what you have to offer, and they desperately want it to match their needs. Your job is to hopefully meet those needs. Once you do, they are most likely to be your next biggest advocate.


Why NPS Matters

One of the main reasons NPS is so widely adopted is that it is considered an indicator of potential business growth. But why is it considered this? Well, when implemented correctly, NPS can have real, measurable impacts for ALL teams at your company. One of the biggest misconceptions about NPS is that it is the sole responsibility of the Customer Success/Customer Service department. However, EVERY single employee in any given company has an impact on the customer’s experience and can ultimately benefit from their feedback.

  • C-Suite – Used as a KPI, NPS provides one simple metric that impacts the entire company and provides a clear picture to the health of the organization. It’s also highly predictive which gives the company the ability to have a reliable forward-looking metric (if measured and acted on correctly that is).
  • Finance – When tied to an LTV (Lifetime Value), NPS is a great indicator of both future growth and churn.
  • Customer Success/Support – For these departments, NPS is all about routine account engagement and proactive identification of issues that may be related to churn, reduction in usage, etc. NPS allows the Support/Success teams to triage issues before they become more significant. In the process, they benefit by often reducing the volume of future support needed. NPS also provides the WHY in most cases behind a user’s behavior, something pure data analytics do not.
  • Product/Engineering – NPS provides feedback that can be associated to brand/product sentiment and broken down clearly into different categories. The insights gained from NPS can provide individual trends/feedback themes which can be looked at alongside usage and revenue impact to help weigh product decisions.
  • Marketing – For marketers, it’s critical to understand who your best customers are and what about the brand/product drives their advocacy. NPS helps identify how they should position as the key message behind the product, what resonates with prospects, where they WIN and what messaging they should possibly shy away from to reduce Detractors before they even touch the product. In addition, with enough customer data, Marketers can get a very clear picture of what an “ideal” or best customer looks like. NPS will help surface what customer stories or personas should be targeted and focused on. It will help them spend more effectively, focus their message and convert at much higher rates (not to mention having customers they know are going to likely be Promoters from the start).
  • Sales – Promoters are a Sale rep’s best friend. They provide insight into the key motivations of future buyers. They help identify the top drivers of their product/service and how best the leverage them. Not to mention their ability to make solid introductions and serve as convincing references for future prospects. Imagine for a moment the benefit of lead scoring if you can easily take into consideration similar attributes that a lead has in common with existing promoters of your brand/product. Gone are the days of “industry” and “number of employees” being the main data points there. Sales staff can get a ton of value from Detractors as well. They help to prepare for any potential objections and product shortcomings that may be surfaced on sales calls. Additionally, Detractors can provide insight into which type of prospect is most likely to drive down life time value and absorb ongoing support resources.


NPS Is Not the Only Answer

I’m a fan of NPS, clearly; I’m here today talking about it and ChurnZero includes NPS as part of our core Customer Success offering. I like simple surveys that provide broad insight. From the broader information, you can then go verticals and gather specific feedback. And my experience with NPS is that most customers will take the short survey and they may even answer another question or two.

But I’m not going to tell you the NPS the only – or even the definitive, no questions asked, best – option when it comes to assessing Customer Satisfaction. There are certainly other options out there; two of the most commonly discussed ones are CSAT (Customer Satisfaction) and CES (Customer Effort Score). There are two thoughts I want to impress upon everyone about customer satisfaction metrics:

  1. The choice of metric is not as important as people think. Frankly, you rarely see companies succeed or fail based on a specific metric they choose. What is important is that there is an interest in collecting, understanding, tracking and improving customer satisfaction. And to that end…
  1. Driving improvements is what’s critical. Your NPS measurement means nothing unless you do something with it. So instead of obsessing about the specific metric you should use, direct that obsession towards the system you’ll put in place to make changes based on what you learn from using the metric.

Blog Author: Abby Hammer, VP Products & Customer Success, ChurnZero


ChurnZero Resource

NPS Cheat Sheet

To learn more about Net Promoter Score (NPS), check out our cheat sheet. In this NPS Cheat Sheet you will find a complete description of NPS and key terms to enrich your Customer Success vocabulary. You will also learn how to administer and calculate NPS, recommended follow-up actions for each segment, and other best practices.

Download Now


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