Is Net Promoter Score (NPS) still a relevant success metric?
Since its conception in the early 2000s, Net Promoter Score (NPS) has been a widely used metric to help businesses identify their most loyal customers. In simple terms, the NPS system creates an opportunity to ask customers whether they would recommend a business to others and then asks why or why not. This powerful data can help businesses identify their most passionate customers (aka promoters) and has been widely regarded as a vital indicator of growth potential. It’s an approach that is used by two-thirds of Fortune 1000 companies and has grown to be an industry standard for data collection.
The NPS system has, however, earned its fair share of criticism throughout the years. One broad-based study yielded data suggesting that NPS may be no better at predicting success than other loyalty metrics. Other research has questioned NPS’s true predictive power. With so much conflicting information surrounding NPS, it can be hard to know if it’s a worthwhile investment for today’s businesses. In this article, we’ll take a deep dive into NPS and help you decide if it’s still a relevant metric for success.
NPS Origins
The NPS metric originated with the business strategist Frederick Reichheld in 2003. At the time, he published an article in the Harvard Business Review titled “The One Number You Need to Grow” detailing the concepts of NPS and how it’s a critical metric for sustained business growth. The article presented data showing a strong connection between a company’s growth rate and the number of customers who willingly recommend the business to others.
According to Reichheld, previous growth metrics such as market share, customer satisfaction ratings, and financial data are unnecessarily complex and often provide a distorted view of growth potential. With NPS, on the other hand, businesses can focus on more direct and actionable data.
In the article, Reichheld writes, “The path to sustainable, profitable growth begins with creating more promoters and fewer detractors and making your net-promoter number transparent throughout your organization. This number is the one number you need to grow. It’s that simple and that profound.”
Reichheld’s article made a deep and immediate impact on global business strategy, and since then, NPS has been a go-to metric for brands such as Siemens, Philips, GE, Apple Retail, and American Express.
The Ns and Outs
At its core, NPS revolves around asking one simple question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” Businesses can use this question in a variety of contexts, including post-sale questionnaires, follow-up contacts, and even employee surveys.
Respondents are asked to give a zero to 10 rating, and then each respondent is categorized based on the number provided. Those who respond with nine and 10 are rated as “promoters” and considered the most likely to recommend the business to others. Respondents offering a seven or eight are ranked as “passives” and are assumed unlikely to either promote the business or speak ill of it. Anyone responding with a six or below is dubbed a “detractor” and considered high-risk to spread bad sentiment about the business within their communities. A final NPS score is determined by subtracting the overall percentage of detractors from the percentage of promoters.
In his article, Reichheld recommends three critical practices for implementing NPS metrics within any business:
- The data should be transparent and readily available so that workers can continually use it to improve performance.
- Organizations should apply the feedback towards daily operations and improvement processes.
- CEOs and leaders should make improving the NPS a high priority and consider it a mission-critical success metric.
Is NPS Still Relevant? Here’s the Verdict
NPS metrics became a popular business trend in the mid-2000s, and like most trends, the approach has also found its share of criticism. Despite the naysayers, NPS metric can be a powerful tool for businesses to help deepen relationships with their most loyal customers and improve relationships with passive users. It’s certainly not the only predictive measure of a company’s future success, but when combined with other tools, NPS metrics can be a valuable cog in a larger machine.
Part of what sets NPS apart from other predictive growth metrics is simplicity and versatility. It’s an approach based entirely on immediate feedback from willing participants, meaning there’s very little room for deliberation or bias in the data. It’s also relatively easy to implement as a business, especially if relationship intelligence tools are already in place. What’s more, NPS data collection can easily be shifted from broad topics such as overall satisfaction to targeted ones including product preferences and customer support reviews.
NPS metrics provide businesses the opportunity to focus on their own strengths and weaknesses with data that can be directly compared to other businesses worldwide. In this way, NPS may not necessarily be a direct influencer of business success, but it’s certainly a relevant indicator of future prospects.
Leveraging NPS Metrics with Customer Relationship Management (CRM) Tools
NPS metrics can be a useful tool for any business, but they become truly powerful when combined with a strong customer relationship management (CRM) system. For example, with the right CRM, every employee in a business has immediate access to a customer’s profile with records of previous interactions and up-to-date notes about current inquiries. This not only creates a smoother and more customized experience for the customer but also promotes the high-level NPS transparency Reichheld recommended.
CRM tools can also help businesses maximize NPS metrics through automation tools, such as follow-up emails and automatically generated reports about client interactions. Tools like these can help eliminate human error and make sure no potential follow-up sales fall through the cracks. Using a CRM to analyze customer data can also help businesses to easily pull NPS metrics based on attributes including company size, industry, type, location, and revenue. Incorporating NPS into your broader CRM strategy can help to keep your current promoters engaged and shine a light on customers who may need more attention.
Check out SugarCRM’s extensive case studies to find out about the powerful CRM tools that can help convert more of your customers from detractors to promoters.
