How the Net Promoter Score Helps You Benchmark Customer Loyalty

We've all heard the saying "the squeaky wheel gets the grease." And although we recommend visiting a mechanic over fixing your car with a can of grease, this expression still applies to your customers.

Customer reviews have a lot of power -- especially in the internet age, when recommendations and complaints can go viral on social media faster than you can say "the customer is always right."

Word-of-mouth recommendations -- and complaints -- are taken incredibly seriously by consumers. Recommendations from friends and family members are the most trusted source of advertising for 83% of respondents, and nearly 100% of customers surveyed said they trusted recommendations from other people -- even strangers -- more than content from brands.

Conversely, a Harvard Business Review study found 48% of customers who had negative experiences with a company told 10 or more people. And as it turns out, customers like talking about bad customer experiences more than good ones -- American Express's "Global Customer Service Barometer" survey found the average customer in the United State tells 8 other people about good experiences -- and 21 people about bad experiences.

If you're reading this and starting to panic because you have no idea what your customers think of your product or your service, remain calm. You just need a method to start surveying them and analyzing their reviews to determine how loyal and enthusiastic your customers are -- or aren't. That's where the Net Promoter Score can help.

What Is Net Promoter Score?

The Net Promoter Score, or NPS, is a simple survey method to help you determine how loyal your customers are. NPS is a customer satisfaction metric that measures, on a scale of 0-10, the degree to which people would recommend your company to others. 

Surveying Your Customers

NPS is calculated by surveying customers and asking the question, "on a scale of 0 to 10, how likely are you to recommend to a friend?"

Once you've collected the answers to this question, you can categorize customer answers into three groups:

• Customers who answer with a 9 or 10 would most likely recommend to a friend, so they are promoters.
• Customers who answer with a 7 or 8 are neutral, so they are passives.
• Customers who answered between 0 and 6 most likely wouldn't recommend to a friend, so they are detractors.

Tally up the total number of respondents, and then tally up the number of respondents in each category. Determine the percentage breakdown of each category. 

Calculating Net Promoter Score

Then, to calculate NPS, you subtract the percentage of "detractors" (customers who wouldn't recommend you) from the percentage of "promoters" (customers who would recommend you). Obviously, the fewer detractors, the better. Regularly surveying and evaluating the NPS for your business allows you to establish benchmarks so you can figure out how to improve the loyalty of your customers -- and, hopefully, generate more positive recommendations than negative reviews.

So, if you surveyed 10 customers, and eight were promoters and two were detractors, 80% would be promoters, and 20% would be detractors. The formula for your NPS calculation would be:

NPS = 80% - 20% = 60

Understanding the Net Promoter Score

Using this calculation, the optimal NPS would be 100 -- with every single one of your customers saying they would recommend you to a friend -- and 0 being the worst possible score -- that none would recommend you. To put into perspective what sort of NPS your favorite companies are earning, here's a quick snapshot:

• Apple: 89
  
• Amazon: 69
• JetBlue: 68
• Google: 38
• Verizon: 7

The last score -- Verizon -- might have made you stop and wonder, "huh?"

Depending on your cell phone carrier, you might think Verizon sucks -- but it's not because of its NPS. A regular, or even ideal, NPS depends on individual industries. Let's take a look.

Net Promoter Score in Context

Context is important when it comes to most statistics and data, and NPS is no exception. The average NPS varies across industries, so it's important to consider the context of your industry when evaluating your own company's NPS. Below are customer experience management company Satmetrix's calculations for the average NPS, by sector, in the United States:

Source: Satmetrix 

So as you can see, although Verizon's NPS of 7 is lower than average, it's not outside the standard deviation of the cellular phone service sector. As a matter of fact, an NPS of 7 would be a great score for a cable TV provider -- but a terrible score for a department store. See what we mean? Industry context is key to evaluating the health of your NPS.

It's important to measure your NPS against other companies in your industry, but it's more important to measure your own NPS over time -- to see if it's improving, worsening, or remaining the same. Companies should always strive to maintain and improve the NPS -- to keep current customers happy and to help attract new ones.

The Impact of the Net Promoter Score

Referral Marketing

A high NPS helps companies take advantage of referral marketing -- which helps companies harness the enthusiasm of engaged, promoter customers to generate buzz and awareness and attract new customers. Through customer loyalty and brand advocacy programs, brands can use enthusiastic customers' word-of-mouth and online recommendations, social media promotion, and event attendance to gain new leads and customers.

Here are a few more convincing stats about the power of referral marketing -- if you aren't already convinced: 

• Customers are 4X more likely to buy when they're referred by a friend.
• 83% of happy and satisfied customers are willing to provide referrals.
• New referred customers have 16% higher lifetime value.

The success of referral marketing is a reflection of social proof -- the theory that consumers will adapt their behavior according to what other people are doing. If a person knows your company already has hundreds of happy customers, they'll be more likely to consider purchasing from you.

Customer Loyalty 

It's easy to focus on how to acquire new customers, but you also want to constantly evaluate how to retain existing customers and keep them happy, too.

Why? Two big reasons:

1. It's 5-25X more expensive to acquire a new customer than it is to retain an existing one.
2. Increasing customer retention by 5% can increase profits by 25-95%.

These numbers aren't anything to scoff at. While marketing and sales teams are hard at work attracting, converting, and closing new customers, customer success teams need to be hustling to retain customers and reduce churn -- and the NPS is a way to measure progress on that front.

Companies should measure NPS results over time -- both the overall score, and the breakdown of scores in each category -- to evaluate churn risks and other potential potholes. An increasing number of promoters and a decreasing number of detractors is ideal, but you should also measure how the breakdown changes over time. An increased number of detractors is an obvious red flag, but pay attention to your passive responses, too.

If the number of promoters decreases, and the number of passives decreases, that could mean customers are less satisfied and are at risk of becoming detractors or switching to another brand.

If the number of detractors decreases, and the number of passives increases, that could mean customers are happier with your product, but that they still aren't completely satisfied enough to promote you.

An abrupt change in the number of promoters or detractors is a clear signal, but stay vigilant of passive respondents, too -- they could be on their way to either end of the NPS spectrum.

Determining Your Net Promoter Score

Now that you're ready to learn from your customers -- and engage them through customer loyalty programs and social media -- it's time to start asking questions. 

You can use survey tools to ask your customers the NPS question -- "on a scale of 0 to 10, how likely are you to refer us to a friend?" We also suggest leaving an open form so customers can comment about why they gave the answer they gave so you can analyze your quantitative and qualitative results.