In a fast-paced business environment, understanding and measuring customer satisfaction is paramount. One of the most effective ways to measure this is with the help of Net Promoter Score (NPS). NPS has gained widespread popularity among businesses of all sizes due to its simplicity and ability to be used in various industries. In this blog post, we will discuss how NPS is a strong customer metric that helps in business growth.
What is the Net Promotor Score?
Let's first understand the term Net Promotor Score. NPS is typically when a customer is asked to rate a value between 1 and 10 for the question - "how likely are they to recommend the company/product/ service to other friends and colleagues?"
>Based on the score the customer provides, they can be divided into three groups:
- Promotor: A promotor is when a customer scores between 9 and 10. These are customers who are happy or satisfied with the company's services.
- Neutrals: They provide a score of 7 or 8. These customers are unsatisfied with the services and may look for other options.
- Detractor: A detractor gives a score between 0 to 6. These are unsatisfied with the services and are not likely to recommend the company to others.
Overall NPS is calculated by:
NPS = (% Promoters - %Detractors)/No. of Respondents * 100
A score of:
- 70 – 100: Excellent
-
30 – 70: Great
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0 – 30: Good
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-100 – 0: Needs Improvement
Why is the NPS Metric Tending?
- NPS is a simple yet powerful tool businesses can use to maintain a good customer relationship. NPS lets you identify your promoters who are your loyal customers and will help you grow your business through positive word-of-mouth. Companies can maintain good relationships with promoters by offering discounts, loyalty reward points, and other perks.
- Similarly, companies can identify their neutral and detractor customers to gather qualitative feedback. This feedback can be converted to actionable insights to improve product/service/company. This way, the company can try converting more neutral and detractors to promoters.
- NPS is not restricted to a particular industry, so it can be used as a universal metric across different industries where customers play a significant role.
- The success of a company has a strong relation with NPS scores. Companies with high NPS scores will likely perform well and have good revenue growth. Companies can cultivate a customer-centric approach to maintain a sustainable business.
Why do companies invest in the NPS ML model?
Despite being an important metric, NPS is also difficult to obtain. Roughly less than 10% of people end up filling out the feedback forms. But with the help of machine learning, we can leverage historical feedback surveys to predict the NPS scores of the entire customer base.
NPS can be treated as a classification problem where we can build an ML model that predicts if customers will become promoters, detractors, or neutral based on transactional and demographical patterns of customers who have already completed these surveys.
Comparing CLTV metrics with NPS
Customer Lifetime Value (CLTV) is another valuable customer metric industries use to evaluate the company's revenue and identify loyal customers.
CLTV tells how much revenue a company can expect from its customers based on their spending patterns. Based on CLTV, we can identify the high and low-spending customers.
However, just knowing your customers' CLTV will not give the complete picture of their satisfaction with your company. A customer with high CLTV value might be on the verge of becoming a churn customer because they are no longer interested in your product or find something lacking in the current services. So, to retain your existing customers' loyalty, survey feedback such as NPS scores will help.
Conclusion
NPS is a solid metric to help companies understand, measure, and improve customer satisfaction. It strongly correlates with companies' growth, as promoters are more likely to enhance company branding by spreading good word-of-mouth. Promotes will also help increase customer lifetime value and decrease customer acquisition costs for the company.
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Namita Menon
Associate Manager
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