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Net Promoter score - Everything a startup should know about

What is NPS, why it matters, and whats mistakes a startup should avoid while implementing Net Promoter Score?

Net Promoter score - Everything a startup should know about

Friday May 15, 2020,

6 min Read

How many of you had your first client with a reference from a friend or family member? Sometimes that influential uncle just made a phone call and it opened the doors for you? 

It's good for a start, but can you replicate this at a scale? The question you should ask yourself is what can I as a business or startup founder do to turn my customer into that friend whose referral can open a few doors for me? And that also at a scale? Such customers are your loyal fans who keep using your product and also keep talking about your product in their friend circle. 

But do you really know what your customers think about your brand or products? Do you have a loyal customer base? After spending so many months building your brand and customer experience, it should definitely be in your best interest to know the answers to these questions. 

Enough has been said and done about the net promoter score and if you are in business for 2-3 years, perhaps you considered or implemented Net Promoter Score already. 

What is Net Promoter Score?

Net Promoter score AKA NPS is the customer loyalty metrics and as its creator Frederick Reichheld put it, it's the one number you need to grow. It categorizes customers based on their responses to promoting your business by referral. Establishing a common language and metric around customer satisfaction for founders and business owners to understand how their customers feel about their brand, it simply answers one question, ‘Do your customers like your brand enough to recommend it to their friend?’. 

Net Promoter Score Survey categorizes your customers under three categories based on their responses.

Promoters: They are the customers who love your brand and are most likely to recommend it to their friends or family. They rank in the range of 9 to 10. They are loyal customers who will bring more referral business to you.

Passives: They are the customers who are merely satisfied with your brand but not so convinced with your service or product. They are most likely to switch to your competitors for more features, services or pricing. They rank in the range of 7 to 8.

Detractor: They are the dissatisfied customers of your brand. They might have had a negative experience or poor quality product or service that it is highly unlikely that they will ever use your product or services again. They rank in the range of 0 to 6.

The final Net Promoter Score can now be calculated by subtracting the percentage of detractors from the percentage of promoters. Although the NPS can range from -100 to +100, an NPS greater than zero is positive for the company.

Net Promoter Score - Advantages and Disadvantages

While the Net Promoter System does give valuable outcomes, it is important for you to understand all the pros and cons of this system before diving in. 

The positive aspects of implementing NPS for your startup:

Let's dive in to understand all its positive aspects and investigate how such a simple survey can help your brand.

  • Understand what the customers feel about your brand by asking them directly through short and simple NPS Surveys. With every closed-end question, followed by an open-ended question, the customer can provide more detailed feedback if they want to.
  • The NPS Surveys are easily measurable and don't require any data analysis. With easy to read results, you can tell the percentage of a satisfied customer base at a glance. It provides analytical insights on customer retention with clear feedback. 
  • With its three customer categories, promoters, detractors, and passives, NSP Survey provides a common language to classify a customer’s loyalty and takes required actions on each category. 
  • The NSP system is simple, intuitive and easy to use and requires no experts to analyze or statisticians to administer.
  • Incorporated by the leading management-consulting firm Bain & Company, it is an industry-recognized metric that provides a big-picture gauge of customer loyalty and is known by C-suite executives across the industries.
  • As it is industry-recognized, it not only enables the brands to identify their position in the competitive landscape, and they set their benchmarks, but also helps the managers to understand how they are performing compared to other departments in a company.
  • A Harvard Business Review study has found a strong correlation between NPS and a company's revenue. Hence it has been used as a key metric to drive business growth as the company becomes more focused on improving the score.

Where does NPS Fall short?

As simple as the NPS Survey is, like many other substantial survey systems, NPS comes with its inherent drawbacks as well.

  • While the NPS Survey tries to quantify customer loyalty, it does not offer much on why the customers may be Detractors or why they feel that way, and what needs to be changed.
  • The NPS system is one-dimensional, although the NPS system’s simplicity is what sells it, it is also a weakness as it is difficult to diagnose the underlying problem where the brand is lacking and can be improved with no information from the customer about other dimensions.
  • The NPS Survey enables you to gauge your performance, but without a plan to act, it doesn’t tell you where to go.
  • The NPS Survey is a great first step to understand where you stand in terms of customer loyalty but without a plan of action to go ahead, the NPS system is ineffective.  
  • However, it is difficult to quantify customer loyalty, it does not guarantee that the Promoters will most certainly go ahead and recommend your brand.
  • Relying on one question, the purport of the other questions is lost. Any survey would serve its purpose and is much better accomplished if it accompanies a detailed questionnaire that seeks answers against multiple parameters of service.
  • Summarizing everything on a scale of 0 to 10 limits, the insights to interpret findings lose its accuracy and reliability. 

Points to remember while adopting NPS for your brand.

While it is easy to take an NPS survey, it is important not to spend too much time and effort on influencing the score rather than focusing on customer experience. The following are the few takeaways for you.

  1. The NPS system has proved to be a critical feedback collection strategy as per audience segmentation, market segmentation, and customer maturity. 
  2. The greatest advantage of NPS is that it correlates strongly with the brand’s revenue. It not only measured consumer loyalty but also having a high Net Promoter Score can aid in increased business growth. 
  3. Also, taking a survey is not enough, it is imperative to respond to the customers, to let them know that their feedback is valued and also have a plan of action towards the Detractors.