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Growing a business

What’s a Net Promoter Score and why do I need it?

When it comes to growing a small business, reputation is key.

Try looking at it this way: Your best friend stops by Cafe A every morning and preaches about their extra flaky croissants to anyone who will listen. Then there’s Cafe B, which is a bit closer to your home but has some middling croissant reviews online and a rumor circulating about a moody barista.

Which cafe would you rather visit?

Cafe A for the win. The point? A positive word-of-mouth can be huge for a small business. For example, in a five-star rating system, 3.3 is the average minimum rating that most customers would consider engaging with. But 68% of consumers are willing to pay more for the same product or service if they’re assured that they’ll have a better experience.

But how do you know what your customers are saying about you? That’s where the NPS (Net Promoter Score) comes in. You’re probably already familiar with the NPS, even if you didn’t know its formal name. Any time you’ve been asked “How likely are you to recommend us to a friend?” that business is most likely using an NPS survey to gauge customer satisfaction and loyalty—especially in comparison to their competitors.

The real benefit of NPS is finding out whether or not your customers will be “brand evangelists” for you—posting positive reviews or recommending your product to friends and family. Or alternatively, you’ll find out if they’re “brand detractors,” telling others to stay away.

Then, you can use this data to address problem areas, improve the customer experience, monitor loyalty trends, and grow revenue through referrals and upsells.

How the Net Promoter Score works

The NPS system is a broad, single-question metric to help you collect customer feedback and determine a survey respondent’s willingness to promote your business organically. The methodology was created 20 years ago by Fred Reichheld—a management consultant at Bain & Company—to measure real-time customer satisfaction and loyalty, and as a predictor of business growth.

The response to an NPS question is measured on a scale of 1 to 10 and correlates to one of three groups: promoters, passives, and detractors.

  • Promoters (9-10): These are your most enthusiastic and loyal customers. They’re the most likely to spread the word about your business and send others your way.
  • Passives (7-8): These are your indifferent customers. This doesn’t necessarily mean they don’t like your product, but they probably wouldn’t think to recommend you to a friend.
  • Detractors (0-6): These are unhappy customers who won’t just switch to a competitor, they may also tell others about their bad experience.

Now for the math. To determine your official NPS, take the percentage of promoters and subtract the percentage of detractors. That magic number is your NPS.

Percentage of promoters - Percentage of detractors = Net Promoter Score

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Why an NPS survey matters

Instead of measuring one transaction or customer interaction, your score provides a much bigger picture of the entire customer experience. If the customer journey is positive, you’ll build customer loyalty—retaining your biggest fans and drawing in new ones.

In addition to providing a benchmark for user sentiment, the NPS offers an opportunity to engage with your customers. If someone had a great experience, a positive score creates an opportunity for you to find out why.

On the other hand, if the product didn’t meet their expectations, the NPS will alert you to issues that may need to be resolved. Multiple touchpoints in the customer lifecycle give your team the feedback to continuously refine your product.

It can also be helpful to do some research on NPS benchmarks within your industry, so you can gauge how you’re stacking up next to the competition and understand what the key drivers are for a good NPS.

How to use the Net Promoter System

Start by surveying your customers twice a year. It depends on your business, but anything more than annually may be too often. You’re unlikely to gain many actionable insights every quarter, or even every six months.

Once you’ve pooled the responses to your survey questions, follow up with the detractors. You’ll want to stop the “leak” of negative word-of-mouth as quickly as possible. Drill down into why they’re dissatisfied with your company or product, then set a strategy to address those pain points—whether it’s stronger customer support or improvements to your services. Simply listening and responding to their feedback lets them know you care and will improve customer relationships.

Then engage your promoters, aka “your brand evangelists,” and don’t shy away from asking for a referral to new customers! After all, they’ve already indicated they would recommend you. Let your best customers know that you want to grow your business, you appreciate their referrals, and you will value them even more as a customer. (As an added incentive, offer them a discount to show your appreciation.)

Or, if your relationship is B2B, offer to do the same for that customer. Mutual-referral marketing is usually a big win for both sides.

You should also engage the passives. In fact, these users can be low-hanging fruit who may need only a bit of extra attention to become promoters. Converting passives to promoters is often the easiest way to give your score a boost, up the number of promoters you have and, in turn, increase referrals to new business.

Leveraging NPS data is only the first step in improving your business and growing your customer base. With a little attention and work, it can also be one of the best steps you and your business will ever take.

Rob Freedman is vice president of marketing for Fourlane, a leading financial technology consulting firm based in the United States. With 15 years of experience in brand building and marketing, Rob is deeply passionate about creating unique brand stories and developing world-class customer experiences. Outside of work, he loves traveling with his family, great music, and good medium roast coffees.

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