Whether you are the CEO, the product manager or the product marketing manager of a company, you want your business to succeed. To be more successful, a business has to learn how successful it already is.
But how do you measure the success of your products or your company?
There are a number of ways to measure the success of a product or a company. Significant increases in revenue, the total number of customers and the frequency those customers use your products offer valuable information in the success measurement. However, the healthiest way of learning whether your product is successful is by measuring the satisfaction of your customers.
Satisfaction is a quality and it is impossible to evaluate qualitative data. To solve this problem, companies use valuable data called NPS. What is NPS and how can you use it today for your business? Who uses NPS and which NPS tools can you use? In this definitive guide, we will cover everything about NPS.
What is NPS?
Short for Net Promoter Score, NPS is a highly useful score between -100 and 100 that measures customer satisfaction, obtained after gathering quantitative feedback from customers and running a process of calculations. Since its first introduction in 2003 in Harward Business Review, Net Promoter Score has become a widely accepted and used metric among the most successful companies.
With the help of NPS, companies can learn whether their customers are loyal and willing to recommend products and the company in their networks. Such data assists in deciding what to improve existing products and services.
First, a variation of the question “On a scale of 0 to 10, how likely is it for you to recommend our product/service/company to a friend or a colleague?” is directed at the users. With the gathered answers, users are then divided into classes. Calculations done using the data of these classes provide you with your NPS. Let’s take a detailed look at these calculations of NPS and the classes users are divided into.
How to calculate NPS?
The process of achieving your Net Promoter Score is categorized into three phases:
- Data Categorization
- NPS Calculation
Each of these phases is simple and no background in any field is required. The whole process is easy to apply to your own business. Just follow along with the phases and pay attention.
Before starting to calculate anything, you need something to calculate, you need data. In this case, the source of your data is the replies you are going to get for survey customers will go through.
You can include various questions in this survey, but there will be a single question which will matter. The question is usually “On a scale of 0 to 10, how likely is it for you to recommend our product/service/company to a friend or a colleague?” but the words could be changed or reordered to fit your business.
For example, if our blog implemented this question, we could use something like “How likely are you to recommend our blog to your friends?”.
It doesn’t have to be just one question.
You don’t have to make it a 1 question survey, it would be useful to follow up with questions such as “What would be the main reason behind your rating?” or “Why would you (not) recommend us?”. Getting to learn the reasons for the high and low ratings could be essential to improve.
Successfully implementing this survey without making it a pain point will help you get genuine responses from your customers. With enough responses, you can move on to the next phase.
2- Data Categorization
Not that the answers to the survey are gathered, the categorization of the users according to this survey has to be made. In the second phase of calculating NPS, the users who participated in the survey are divided into 3 groups depending on their 0-10 answer score.
– 0-6 Detractors
The group who rated their likelihood of recommending your product or company between 0 and 6 are the customers who are unsatisfied with their experience with your business. This group is called the “detractors”.
Considering the detractors as just a disgruntled group that will be satisfied after fixing their pain points is a huge mistake. Detractors are much more than that, they are a direct threat to your company. A single detractor could do a great deal of harm to your brand by sharing their bad experience in their networks and people are significantly more interested in negative reviews than positive ones.
– 7-8 Passives
The group in the middle who did not struggle while using your products neither had an efficient and positive experience during their time with your company are called passives. Although it is easy to improve their experience and improve their scores, they are likely to switch to the competing companies who offer just a slightly better experience.
– 9-10 Promoters
The final group of customers who answered the survey is promoters. As it is clear from the name of this group, these customers are eager to promote your company through their networks. A high number of promoters is ultimately beneficial for your brand because it can be considered marketing with no extra effort.
After dividing your users into these 3 groups, you are ready to calculate your company’s NPS.
3- NPS Calculation
In the first step of calculating a company NPS the total number of customers participated in the survey and the total number of customers in each of the 3 groups are required. With the data you gathered and categorized, you have access to these numbers.
The percentages of each group to the total number of customers participated in the survey has to be calculated. The NPS is found using these percentages.
For the final step, you subtract the percentage of detractors from the percentage of promoters. Let’s give an example on NPS calculation. You have surveyed 200 customers and gathered their answers. 50 customers rated 0-6 which you categorized as detractors. 70 customers who rated 7-8 are grouped as passives and the remaining 80 customers who rated 9-10 are now in the group of promoters. When you calculated the percentages, 35% of your customers are passive, the %40 are promoters and the %25 are the detractors. When you subtract detractors percentage (25) from promoters percentage (40), the NPS is 15.
If you have gone through all the phases correctly, you now have your company’s Net Promoter Score. But why is calculating your NPS this important, what can you use your NPS for?
Why does NPS matter?
Companies from every field of the market whether they are a major company or a new start-up regularly measure their NPS. What makes all these businesses adopt this method of success measurement? Why is NPS such important data?
The Net Promoter Score of a company offers valuable information on whether the customers are satisfied or not. This data alone makes NPS highly valuable because customer satisfaction is the healthiest way of knowing that your product is a success. But the uses of NPS do not stop there. There are a few ways you can use NPS to improve your brand name and the overall experience of your customers with your products.
Gather Valuable Feedback
As we mentioned before, you can direct a question to your survey participators asking what the reason behind their rating is. This question following their likelihood to recommend ratings will usually end up receiving honest answers that you can use as a valuable source of feedback.
You can use the answers of the detractors to make changes and improvements on the parts and features they had negative experiences with. The answers gathered from the passive group could be used for the same purpose.
With the answers gathered from the promoters group, you will learn what features improved their experience that ended up in such positive ratings. Changing the features and the parts your customers enjoyed using might be a huge mistake and end up significantly changing your NPS.
Improving the overall experience of your customers using these feedbacks will boost your retention rates. NPS and retention rates are directly related to each other. Especially for SaaS products, boosting retention is key to having long-term overall success with high numbers of loyal customers.
Market without Cost
What does a customer trust more and act on? Expensive advertisements that pop-up everywhere or recommendations of their friends and colleagues? You don’t need a professional marketing background to answer this question, it is obviously the latter one.
Accessing people through the channels they already trust is no-doubt a great marketing strategy. In our case, the channels they trust are their friends and colleagues, or random people they follow on social media. Using your NPS, you can address the pain points of your users and improve their experience, which will eventually lead to an increase in the NPS itself. A high NPS means the majority of your customers are eager to promote your products and your company. Most of them will be so eager that if you provide them with the necessary tools and information, they will actually promote your business.
After your survey, ask your customers who rated above 8 to share your product in their networks. Provide them with a link to a platform where they can write an online comment or leave a review, a share button that allows them to spread your word on online platforms, etc. Offering easy ways to do so can result in positive results in your part.
See Your Ranking
A big number of companies calculate their NPS and benefit from it. Your competing businesses in the field might have already done so. Another great use of NPS is that you can compare your score with your competitors.
Comparing your NPS to your biggest competitors is the only way to know whether you are doing well or not. Let’s say you have an NPS of 60, and you might think that you are doing wonderful. But if the average NPS on your field of service is 70 and you are below this average, it means your business is not that great and improvements have to be made.
Same goes vice-versa. Your NPS might be 20 and it might look like your business is a fail. The terms of your field might be a lot different and the average of your competitors might be an NPS of 10 so it would mean you should keep up the good work. Without comparing your NPS, the actions you are going to take may end up being pointless. Various sites offer NPS benchmarking and detailed analyzing tools which we have listed in the next sections.
Develop and Improve
Now that you have your NPS and you know where you rank among competitors unless you have by far the highest NPS, it is time to improve and surpass those competitors. Process of improvement starts with deciding what to improve and develop.
For example, if your users had a hard time figuring out your product, and the reason behind their low ratings is their first impression with your product, your onboarding process might be failing. You can try to improve your onboarding process or try to get external assist from customer onboarding products such as UserGuiding and try the better user onboarding software for free.
If you don’t have a clue what onboarding process is or you just didn’t realize it could matter so much that it decreased your NPS, check out our article User Onboarding 101 written by the CEO of Product School.
Thanks to the survey you have carried out for calculating your NPS, you have a reliable source of feedback to evaluate and carry out developments from. Eliminate user pain points and improve their experience after evaluation, happy customers mean higher NPS!
Using your good NPS scores, you can request the cooperation of your customers and using undesired scores you can amend your users. Regardless of being positive or negative, direct feedback from users is fruitful.
Which companies use NPS?
A high percentage of companies that prioritize the success of their business benefit from Net Promoter Score at some point. Here is a list of iconic companies from various industries that use NPS.
- USAA ranks the highest in the banking and insurance industries with 75 NPS.
- Apple has the highest NPS among hardware industry with 47.
- Pizza hut is the number 1 fast-food company in NPS rankings with 79.
- Adobe has 25 NPS.
- Home Depot has an estimated NPS of -5.
- Costco has an impressive 79 NPS.
- Amazon has 25 NPS.
- Verizon‘s NPS is 7.
- and Netflix has 13 NPS.
All data gathered from customer.guru
NPS Tools on the Market
Now that you know what NPS is, how it is calculated, why it is important and what to use it for, you will want to calculate it and benefit from it for your business. Having your internal teams such as development work on it is always a viable option, but it doesn’t ensure the success of the process.
If you don’t want to put an extra burden on your employees’ shoulders and spend your valuable resources on calculating and using your NPS, you can always work with external sources who offer useful tools either for calculating your NPS or evaluating and benchmarking it. Here are the tools you can use divided based on their initial purpose.
Survey and NPS Calculation Tools
- UserGuiding – UserGuiding is an easy to use customer onboarding tool that is about to launch a new feature which helps you survey your customers and calculate your NPS with just a few clicks totally code-free.
NPS Benchmarking and Evaluation Tools
These sites offer detailed rankings and benchmarks on your NPS. But it is always an option to manually rank your business using benchmarks that are one google search away.
NPS is a highly useful metric to measure customer satisfaction and success. Now that you have learned what NPS is, how it is calculated and why it is such an important score, you can make the calculations for your business and start using NPS to improve and develop.