WTF is NPS (and why you should care)

That question you’re often asked after you’ve made a purchase: ‘On a scale of 0-10 how likely would you be to recommend…’ is used to measure customer satisfaction. It’s called The Net Promoter Score (NPS).

Originally published in the Harvard Business Review in 2003, the NPS was presented as an effective way to measure customer satisfaction and predict future company growth in a one question survey.

In the 20+ years since, The NPS has become ubiquitous. And for good reason: it works.

How your NPS works

At Kokopelli we’ve tried to break marketing down into its core components and functions. It’s not an approach that’s exclusive to us but we’ve gone to some effort to demystify and simplify things for our clients so that they can understand and control their growth.

One of the first principles we share is that healthy companies should grow without marketing. That’s not to say the growth will be rapid or sufficient. Just that there will be growth. This isn’t an easy principle to prove: most companies are reluctant to switch off their marketing and find out what their bare organic growth looks like.

But here’s the thing: if customers love what you’re doing, they’ll recommend your services. They just can’t help it. And if you’re being recommended, your business will grow. Even if that growth is small, it’s still growth and a world apart from the opposite: shrinkage.

‘Shrinkage’ is a concept you don’t hear being talked about very often in business. The horrifying prospect that, without marketing to top up the customer numbers, your business could be organically shrinking.

This means that your business provides a product or service that is so lacklustre, more customers and clients quit using your products or services than the recommendations and referrals you receive can make up for.

NPS works by giving you an insight into whether your company is likely to experience future growth, or the opposite, on the basis of word of mouth referrals alone.

Some practical examples…

Take a look at the following data and graphs. They depict five fictional companies. In the examples we’ve used, the timescales involved for customers to convert and bring in their own referrals is indicative of a fairly high-frequency, repeat-custom service like a dog grooming parlour or hair salon.

But these examples could be any business operating in any sector. While timescales would change, the principles here hold true universally.

What we see is that with good referrals and good retention, two qualities that tend to go hand in hand, the business grows (see Company 1 and Company 2). And that growth is exponential meaning the bigger the business gets, the faster it grows.

Figure1 : Company experiencing strong organic growth through referrals

Figure 2: Company experiencing moderate organic growth through referrals

We also see that where referrals cease, the business shrinks (see Company 3).

Company 3: Experiencing no organic growth through referrals

Here’s a significant point to note. Businesses that are organically shrinking but that are replacing lost customers with new customers gained through marketing (Company 4) may see growth. But the rate of growth eventually stops. Why? The larger the company grows, the more rapidly it loses customers until customer churn rate equals customer acquisition rate. At that point the business is not only heavily invested in marketing but also not attaining any growth.

Company 4: Experiencing no organic growth through referrals but investing in marketing

Finally then, we come to Company 5. In this example we see a business that is growing organically through word of mouth with strong customer retention and laying down the same investment in marketing-driven growth as Company 4. But instead of seeing growth plateau, we see it explode.

Company 5: Experiencing strong organic growth and investing in marketing.

How to calculate your NPS

Calculating your NPS score is pretty easy.

Step 1: Ask your clients for their feedback

First up you need to conduct an NPS survey of your customers. How you do this will depend on your business sector. For consumer-facing businesses, particularly those selling online, the easiest solution may be to automate a post-sale follow up using a service like Feefo. Your customers will receive an email asking for feedback in the form of a NPS survey, a designated amount of time after their purchase.

For B2B brands, the approach used may need to be more delicate. It may be best to do this for all clients on a quarterly or bi-annually basis, or it may be better to conduct the survey with individual clients when they reach a certain point in your customer lifecycle.

Step 2: Organise the data

With NPS data from your customers to work with, it’s now time to get into the analysis stage of process. Your first task will be to create a frequency table like the one you can see in figure 5.

Figure 5: NPS frequency table

Then, count how many of each score you have and update the table. In figure 5 you can see that there were 12 responses that gave a score of 1 and there were 21 responses that gave a score of 10. Total up the number of responses you received (that number goes in the ‘Total’ box at the bottom of the table.)

Step 3: Get your calculator out

You need to calculate the ‘percent of responders’ for each score. You do this by dividing the response count for each score by the total number of responders and multiplying by 100.

Add together the percentage of responders who gave scores of 9 and 10. This gives you your ‘promoters’ score. Then, add up the percentage of responders who gave scores of 1 to 6. That’s your ‘detractors’ Finally, subtract your detractors scores from your promoters score and that gives you your overall NPS score.

From the data in the table in figure 5, we’d calculate the NPS score as follows:

35-30=5

So what does your score mean?

Any score above zero is good news. That means you’ve got more people out there actively promoting your business than actively disparaging it. Scores above 50 are considered excellent and anything above 75 is outstanding.

How YOU CAN improve your NPS

The NPS is a one-question survey that pretty reliably tells you whether you have more customers actively promoting your business (promoters) or customers who’ll (most likely) never use your company again (detractors). In other words, it tells you if your company is growing organically regardless of whatever marketing you are doing.

A position of organic growth through word of mouth alone is where we like to see all of our clients operating. It’s a position that ensures the benefits of any marketing actions layered on top can easily be seen. That makes strategic marketing investment much easier and more transparent to deliver. It’s also the only way to achieve truly scalable results.

Some take homes

1. Keep your customers happy. Investing in your customer satisfaction is often a far better way to spend your money than on any traditional marketing.

2. Whether you like the NPS audit or not, your business has an NPS score that more or less predicts what its future growth prospects look like. It’s therefore worth getting to know your NPS score.

3. If you’re spending hard on marketing and wondering why it isn’t creating better growth, you could be doing it wrong or (more likely) you’ve not achieved a good enough level of advocacy yet. Loop back around to ‘Take home 1’ and start from there.