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Leveraging Net Promoter Score to Drive Higher Retention

Posted by Origins Ecommerce - August 9, 2018 in , ,

What is Net Promoter Score?

Net Promoter Score (NPS) is a customer loyalty metric developed by Fred Reichheld, Bain & Company and SATmetrix in 2003.

Reichheld argued that traditional customer surveys were simply too long and complicated, which often led to inaccurate answers and poor response rates. A radically simplified method was needed – one that would capture the essence of the customer experience, with less room for confusion and ambiguity.

Enter the Net Promoter Score, a single number calculated from customer responses to two simple questions:

1. “How likely are you to recommend our product to a friend or colleague (on a scale of 1-10)?”
2. “What is the primary reason for your score?”

These quick surveys can be sent via email, website popups, or even short text messages. Customers are then segmented into three groups based on their response to the first question:

• Promoters with a score of 9-10
• Passives with a score of 7-8
• Detractors with a score of 0-6

There are three types of tiers when it comes to NPS: promoters, passives and detractors


How to Calculate and Evaluate Net Promoter Score

After collecting the survey results, the Net Promoter Score can be calculated with the following formula:

Net Promoter Score = % of Promoters - % of Detractors

Net Promoter Score = % of Promoters - % of Detractors

For example, if 30% of your customers are promoters, and 20% are detractors, you have an NPS of +10. Passives are left out of the equation because they don’t feel strongly about your product either way, and so their collective opinion can be assumed to be net neutral.

Given that the NPS can range from +100 to -100, the natural question to ask is, “what’s a good score?” The answer is that there isn’t a specific number to target, because it varies widely across industries. To determine if you have a good NPS, ask yourself three questions:

• Is our NPS higher than our competitors? If the answer is yes, then you’re doing well. Royal Philips Electronics found that relative NPS explained 90% of the changes in the market share between itself and its main competitor.
• Is our NPS growing? Having a higher NPS than you did 6 months ago indicates that you’re making good progress. From 2004-2008, Charles Schwab raised their Net Promoter Score from -35 to +35, and their stock price tripled as a result.
• Is your NPS above zero? While NPS is much more useful as a relative metric, the absolute number does mean something. Having a negative NPS indicates that you have more detractors than promoters, which suggests substantial room for improvement.


Why Should You Use Net Promoter Score?

One of the hardest challenges in customer success is understanding what your customers are actually thinking. The truth is that most of your unhappy customers will rarely tell you about their problems. They’re much more likely to quietly cancel their subscriptions, and then spread the word about their lackluster experience to their friends and colleagues.

Not only does this hurt your retention rates, it also harms your new customer acquisition efforts, as potential customers will form negative opinions about your solution without even trying it for themselves.

Implementing regular NPS surveys will give you the actionable information you need to:

1. Evaluate how happy your existing customers are as a whole
2. Identify customers who are unhappy and engage with them proactively before they leave
3. Determine who your most satisfied customers are and reach out to them for referrals

Due to the simplicity of NPS, all of this can be accomplished quickly and affordably, allowing you to keep a pulse on customer satisfaction without a large resource investment.

But perhaps one of the most compelling benefits of NPS is how it helps companies build a culture of customer success. By providing a single, quantifiable metric to rally around, it can align every department in your organization around the shared goal of delivering the best possible experience for your customers. And that, in turn, is likely to greatly increase your customer retention rates.


How to Get The Most Out of Your Net Promoter Score

One of the biggest strengths with NPS is its flexibility, but it can also pose a challenge when it comes to adapting it for your business. Poor execution can lead to misleading data and ineffective results. With that said, here are a number of best practices to keep in mind when implementing a NPS system:

Find The Right Survey Frequency

There is no single correct frequency for sending out NPS surveys. Do it too often, and you risk causing survey fatigue and low response rates. Do it too rarely and you won’t get the regular data you need to respond in a timely manner.

While determining the right schedule requires some experimentation, there are two major considerations to bear in mind.

The first is the size of your existing customer base. The fewer customers you have, the longer you will have to wait to get enough responses for statistical significance. This limits how often you can send out surveys, especially when you factor in additional time to avoid survey fatigue.

The second is the speed of change at your company. If you are regularly releasing new product updates, or customers are upgrading and buying new products from you at a rapid clip, then you will have more opportunities (and a greater need) to send out frequent surveys. After all, each major change to the customer experience implies that new data will have to be collected to stay up to date.

For many companies, a quarterly survey will work well, but be sure to consider the specifics of your business and test a few different schedules to determine what’s best for you.

Perform a Comprehensive Analysis

The most directly actionable part of a NPS survey is not the respondent’s numerical rating, but the follow-up question on why they gave that rating.

These open-ended comments should be analyzed closely. After a while, certain recurring themes will emerge in both your promoter and detractor comments. Organize these into a few main categories, and track these categories over time as you make improvements to your products and customer service. This will allow you to understand customer wins and pain points at a more granular level, and will give you a solid basis for planning out your product and customer success roadmaps.

When performing your analysis, maintain a broad focus. It’s important to give equal attention to both promoter and detractor comments, as building on your product’s strengths can pay off just as much as solving its weaknesses. In addition, key stakeholders from every department should be involved in the process, as customer success is everybody’s business.

Segment and Follow Up

While the insights gleaned from the survey are valuable in themselves, the segmented follow-up may be even more powerful. After all, NPS surveys have already conveniently demarcated your most ardent promoters and detractors – it’s common sense to reach out directly to both groups.

For promoters, the follow-up is obvious. Since they have already indicated their willingness to recommend your service, you should send them an email with links to share the good word on social media, and to request a testimonial.

For detractors, you can proactively reach out to them offering personalized help with their issue. Do this well, and you’ll be able to prevent many of them from churning. Who knows, some of them might even be converted into promoters after experiencing your responsive customer service!


Implement Net Promoter Score Today

NPS is a very powerful tool for evaluating customer satisfaction and increasing retention. And the best part is, it’s quick and easy to implement, especially with the right software platform. By onboarding a NPS initiative, you’ll be further setting up your business for increased revenue and heightened success.

About the Author

Origins Ecommerce

We love sharing our expertise in online payments and helping our customers succeed. From the technical team to our customer service team, everyone at Origins Ecommerce is ready to support your success. Our goal is to reduce your expenses and risks while optimizing your revenue, by managing your online payments for you. The Origins Ecommerce payment solution is there to keep your payments in motion, so you don’t have to.
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