The NPS Metric: What It Is And Why It Isn’t Always Helpful

The main component of pay-for-performance alignment remains performance metrics. Measuring customer experience (CX) in any meaningful way can be challenging for any firm. Several measures have been recommended as useful tools for assessing the benefits of CX and how it affects customer happiness, loyalty, and referrals.

The Net Promoter Score, or NPS, is one of these measurements. It is a metric for gauging customer satisfaction with products and services and has recently received much attention.

Although some have suggested it as a single metric to assess the effectiveness of your customer experience activities, there are several severe drawbacks if it is the only one utilized, and other experts are questioning the validity of utilizing this statistic without qualification.

Growth Jockey assists companies in integrating a customer-focused mindset into their operations. NPS primarily provides broad strokes, acting as a compass guiding businesses in the proper path.

This does not mean that we believe it is unimportant. The use of a compass is still beneficial. You might need a more detailed topographical map to navigate a challenging or unknown area. When the terrain beneath you is considered, there are better courses to pursue than what the compass suggests.

This article will explain the NPS metric and why businesses shouldn't use it as their sole performance metric. We will also go over the computation in detail to prevent you from using the score to measure performance incorrectly.

We at Growth Jockey believe that when appropriately implemented, NPS and other performance measurement tools can significantly boost the value of your brand, help your clients succeed, and boost sales.

What is NPS?

In 2003, management consultant Fred Reichheld of Bain & Company and the business Sat Metrix collaborated to create the Net Promoter Score, a measure of consumer loyalty. The goal was to produce a score for customer satisfaction that you could compare over time or between different industries that were obvious and simple to understand.

According to a study by Lumoa, NPS is utilized by two-thirds of the organizations among the 100+ customer experience directors (to compare, CSAT is used by fewer than half of the companies, and only 14% of companies measure CES).

A two-question survey calculates the Net Promoter Score (or NPS), which gauges customer satisfaction and loyalty. The first question is, ‘how likely are you to tell a friend or work colleague about my company, product, or service?’ (Responses are given on a 0–10 scale.)

On a scale of 0 to 10, customers are asked to rate their responses in one of three categories:

‘Detractors,’ ‘Promoters,’ and ‘Passives.’

• Detractor range: 0 - 6

• Passives range: 7 and 8

• Advertisers range: 9 - 10

You will send a second question to everyone who responds to the first one, asking them to identify the primary factor influencing their score. If clients click the survey question in the initial email, you can ask it in a subsequent email or display it on a website.

To compute, divide the result by the total responses multiplied by 100, then subtract the number of detractors from the number of advertisers. It's pretty straightforward, and therein lie some of the main reasons why NPS should not be used as your primary tool for gauging client satisfaction and why it isn't always helpful.

Utilizing the NPS calculator, you can calculate your NPS. You may also let Growth Jockey perform the NPS calculation to save time. Your Net Promoter Score is calculated when you utilize our NPS survey form, allowing you to focus on a follow-up strategy rather than keeping track of it in a spreadsheet or salesforce.

Why NPS is Important?

Unique client experiences give businesses a significant competitive advantage, according to 78.5% of CMOS. Let's start by looking at the benefits of the NPS system and how your organization might benefit if you incorporate the results into your operational procedures.

1. It Gives a Chance to Close the Feedback Loop

The net promoter system allows businesses to ‘complete the loop’ or move vertically and obtain more data from responders.

According to Adobe, businesses that put their customers first had 1.4 times quicker revenue growth and 1.6 times higher levels of customer loyalty.

Additionally, it gives them a chance to correct a poor impression. Engaging customers is relatively simple because an NPS survey takes a few minutes.

2. It’s Very Simple

The ease of use of NPS is its second and arguably most salient benefit. In the judgment of the majority, just two questions can reveal customer sentiment by gauging their expressed propensity to recommend. With only two straightforward questions, NPS gauges how eager customers are to risk their reputations for your product.

The calculating formula is simple and only needs a simple spreadsheet to generate; you can deliver it to consumers efficiently via email or publish it on your website. Or, if you use the template provided by Growth Jockey, we'll take care of the calculations.

3. It Relates to Business Growth

The London School of Economics discovered a link between NPS growth and revenue growth after two years of NPS in 2005. According to their findings, a 7-point rise in NPS corresponds to a 1% boost in revenue.

High scores on the NPS are not only a fantastic indicator of client loyalty, but they can also promote business expansion. A study done by The Harvard Business Review is just one of the studies that have discovered a strong link between high Net Promoter Scores and revenue.

The study demonstrates that when businesses adopt the NPS question and use it as the best metric, it aids business growth as the organization becomes more focused on raising the score.

Challenges with NPS

According to User Testing, NPS can reveal what your consumers think of you but may not always provide the reasons behind their opinions.

Calculating the Net Promoter Score excludes Passives, making it difficult to determine the exact meaning and actions of the single value score. Depending on other variables, increases or declines may signify different things.

Following are some challenges with NPS as your only tool to measure performance.

1. The NPS Is Not Specific Enough

NPS, in our opinion at Growth Jockey, can help assist you in understanding customer loyalty, but it does not directly pinpoint the reasons why some of your customers may be Detractors.

Make sure to follow up with more detailed market research surveys to see why your customers dislike specific areas of your business.

Together with Net Promoter Score, Growth Jockey assists you in gauging customer effort (CES) and satisfaction (CSAT) levels. They are strongly related to NPS and help you better understand your customers' experience.

2. It Doesn’t Focus on Differences in Scores

There is no distinction between a score of 0 and a score of 6, even though there is a significant difference between the two. Additionally, it doesn't matter if there are 40% Promoters and 0% Detractors or 70% Promoters and 30% Detractors. Both have a +40 NPS, which isn't reasonable.

3. It Doesn’t Pinpoint the Reason

The NPS solely reflects a customer's current propensity to recommend you. It can be challenging to figure out how to fix the problem moving forward if they give you a low score because they need to clarify why they gave it. And even if they give you a high rating, it sometimes needs to be clarified from that one statistic what element or set of features made their experience exceptional.

At Growth Jockey, we think that requesting a little additional information can go a long way toward helping people comprehend NPS ratings.

Growth Jockey assists you in obtaining more objective diagnostic analytics throughout the sales and product usage processes. Additionally, you may receive knowledge from this that can aid in your comprehension of potential events.

To Sum Up

Businesses throughout the world utilize the Net Promoter Score extensively. As Shep Hyken noted in Forbes back in 2016, it is utilized to report on customer sentiment by asking customers if they would suggest a business to others.

The simplicity and perceived ability to provide helpful insight into actual loyalty and recommendation are two of the appeals of the Net Promoter Score, or NPS.

But Net Promoter has some significant shortcomings, as discussed above. Consumers misinterpret it and get a distorted impression of what is recommended.

Using just two questions as your sole yardstick of achievement is dangerous, especially since you can use other, superior measures to predict growth accurately. Therefore, we at Growth Jockey believe you should rely on more than just the NPS to measure your company's performance.

With the aid of Growth Jockey, you can convert all consumer feedback into a concise, doable plan that engages everyone in the business. Following the calculation of NPS scores along with other performance metrics and feedback collection, we assist you in developing an action plan.

At Growth Jockey, we are committed to delivering tailored solutions that effectively address the critical challenges faced by our clients across various industries, ultimately enhancing the user experience. Regardless of your company's size, whether it's a small-scale enterprise or a large corporation, you can now leverage advanced technologies to optimize your user experience. Take a proactive step towards unlocking the next level of growth for your brand by reaching out to us today!