The following piece was first published on my LinkedIn Profile:
Net Promoter Score: A Simple Tool for Small Biz Owners
The Net Promoter Score® (NPS®) and its supporting system is well known in large corporations and used by many. It was introduced to the business world in a 2004 Harvard Business Review article by Fred Reichheld in which he revealed a link between higher Net Promoter Score ® (NPS®) and business growth. Although the NPS® has its critics, I believe at its most basic level it can be a simple yet effective tool for the owner of a small business.
By adopting and adapting the NPS® methodology the owner of a small business can:
1. Benchmark the customer experience.
2. Identify problems before they go too far.
3. Elicit Customer Feedback.
4. Identify brand advocates for Word of Mouth Marketing.
And the knock-on from these will include:
1. Increased customer retention.
2. Reduced cost of customer acquisition.
For those unfamiliar with NPS®, the Net Promoter Score® is calculated based on responses to a single question, what Reichheld refers to as the Ultimate Question viz: “How likely is it that you would recommend our company/product/service to a friend or colleague?”. The scoring for this answer is most often based on a 0 to 10 scale.
Those who respond with a score of 9 and 10 are called Promoters and are considered likely to be repeat buyers and remain customers for longer; and to make more positive referrals to other potential customers.
Those who respond with a score of 0 to 6 are labelled Detractors, and are believed to display behaviour opposite to the Promoters.
Responses of 7 and 8 are labelled Passives, and their behaviour falls in the middle of Promoters and Detractors.
The Net Promoter Score® is calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters. The ‘Passive’ responders count towards the total number of respondents, but do not directly affect the overall net score.
The potential range is from -100 to +100 and the higher the score the better.
Let’s say you receive responses from 200 customers and the breakdown is as follows:
0-6: 20 (10%)
7-8: 80 (40%)
9-10: 100 (50%)
NPS® = 50% – 10% = 40
Although the NPS® can be used for benchmarking across industries, I am suggesting here that by eliciting responses from customers on a regular basis, the small business owner can use the score simply as an internal benchmarking tool to ensure that a positive customer experience remains the team’s focus of attention.
The method is straightforward.
Once the service has been delivered, submit the ultimate question to your client.
According to the response one of the following three things should then happen:
Detractors (0-6). The business should follow up immediately with these customers to find out what went wrong and ideally fix it. Customers who are “recovered” well could go on to be the business’s biggest fans.
Passives (7-8). Ask these customers what the business could have done better. This helps the business improve. Add to this a feedback loop informing customers how their input is being used and you promote engagement.
Promoters (9-10): These are the business’s brand advocates. It should be made as easy as possible for these customers to spread the word through referrals and reviews.
This system as distilled and outlined here can be implemented quickly and cheaply and, with a survey of no more than 2 or 3 questions, you will have a simple way of benchmarking the customer experience, capturing client feedback and ultimately improving the bottom line. This is good for the hard-pressed business owner and good for the client.
Are you using NPS® in your small business and if so how?
®NPS is a registered trademark of Fred Reichheld, Bain & Company, and Satmetrix.