What is NPS and Why SMBs Should Care?
Small to medium businesses (SMBs) can measure customer loyalty with a system developed by Bain Capital called Net Promoter Score (NPS). This benchmark is used to determine how well a brand resonates with a market to the point of more positive consumers recommending it to others versus the amount of negative feedback. Here are details of the NPS scoring system and how it can empower SMBs.
How to Determine NPS
NPS can be calculated as part of a 1-10 or 1-100 scale rating system that reflects customer loyalty. This score is important because it reveals the likelihood that customers will recommend your product or your service to others and points to areas that need to be improved. Different parts of the scale can be used to define consumer behavior, as follows:
- 0-6: detractors: unlikely to recommend
- 7-8: passives: supporters who keep their opinions to themselves
- 9-10: promoters: customers who spread the word
The above scoring can be thought of as data generated by respondents to the question: how likely would you recommend this brand to a friend or colleague? Either you can calculate your score or let a third party such as SurveyMonkey do it for you. The results can be tracked on an ongoing basis since the numbers will fluctuate over time.
One of the most insightful ways to use NPS is a barometer in relation to growth rate versus churn rate. Studies show that strong customer loyalty drives company growth. A company that aims to develop evangelical customers with high NPS increases its chances at building a sustainable loyal market.
Various Ways NPS is Used
A useful purpose for NPS is to help a business focus more on its growth. Another way it can help an organization is that it can be used to classify customers as promoters, detractors and passives. It helps you understand which customers need the most attention and how to prioritize your communication with specific customers.
As a tool to compare with competitors, NPS shines a light on how you are perceived by consumers in relation to other market players. Since it's a measurement system used in businesses throughout the world, NPS can be compared with industry averages. Another useful purpose is to compare customer satisfaction with your churn rate.
What You Can Learn About Customers
Remember, however, that this system is used to learn general perceptions and does not give you specific reasons why customers like or dislike a brand. NPS research can help you determine how much of your market is at risk of churning.
You can strengthen your company and point it toward growth if you learn which customers are most likely to promote your brand. But this information should only be taken as an indicator that is part of a broader set of indicators. NPS should be combined with direct feedback from consumers.