4 Things About Net Promoter Score® Analysis Your Boss Ought to Know

Tanuj Diwan
Nov 08, 2019

5 mins read

Tanuj Diwan

Getting the boss to say ‘Yes’ to anything is a battle of its own. Day in and day out, they spend their time analyzing the pros and cons of every single decision. They make decisions and take actions based on validated proof.

So, when you are proposing to introduce a business metric like Net Promoter Score®, you have to win your boss’s confidence before getting started.

There are already hundreds of business metrics that every decision-maker pore over. You must prove why NPS® is an all-encompassing business metric.

Here are four things about Net Promoter Score® that we think will make your boss give the nod.

1. It helps identify loyal customers

Every boss ever knows how important a loyal customer is. There is also the popular statistic which states that it costs 5 times more to acquire a new customer than to retain an existing customer.

NPS® is a direct measure of customer loyalty. In fact, according to Fred Reichheld — one of the brains behind the NPS® score idea, promoters become a part of the company’s marketing unit. They act as walking mouthpieces for a brand’s promotion. They voluntarily spread the word about the brand and its products or services to their family, friends and co-workers.

This Invesp infographic states that word of mouth marketing drives $6 trillion of annual consumer spending and is estimated to account for 13% of consumer sales. All the more reason to adopt a metric that helps identify loyal customers.

2. It is a tell-tale sign of organic growth

When Bain & Co. created the NPS® metric in 2003, they did a detailed analysis of how the score impacts or correlates to a company’s growth. The study concluded that a positive Net Promoter Score Analysis to be a sure indicator of the future growth prospects of the company.

But, how can one number predict the long-term growth story of business?

Net Promoter Score® measures customer loyalty. Loyal customers buy more, spend more and also persuade others to buy from the same business.

This helps cut down new customer acquisition costs, marketing costs, customer service costs and also several overheads usually incurred for new market expansion. The cost-savings add to the bottom line which eventually has a snowball effect in the years to come.

If you want solid numbers to prove your point to your boss, a study ‘Advocacy Drives Growth’ that the London School of Economics could come in handy. It found that a 7 point increase in NPS® leads to an average 1% increase in revenue.

A direct increase in NPS® also indirectly boosts CLV. Read here The Ultimate Guide to Net Promoter Score®

3. It boosts CLV

Net Promoter Score Analysis classifies customers into three types — Promoters, Passives and Detractors. Customers who score a business from 0-6 as detractors 7-8 as passives and 9-10 are classified as promoters.

Promoters are customers who are loyal to the business and would also go the extra mile to recommend the business to their near and dear ones. They exhibit the highest CLV (Customer Lifetime Value) as they are easy to retain and also cost less to serve. The business can focus on these customers exclusively to keep the average CLV higher.

Passives are customers who might be dissatisfied with the business and expect changes in the current modus operandi. Net Promoter Score Analysis surveys can help identify what these customers expect out of the business. Well-timed corrective measures can prevent the possibility of passives turning into detractors. Increasing the NPS® score of passives will also help sustain the CLV of the business.

4. It helps reduce customer churn

Net Promoter Score® does not have a direct relationship to churn reduction. However, it can help a business point a finger at the many probable reasons why customers could be leaving. For instance, there could be a common theme or a range of reasons that detractors cite in unison about the product. This could be related to pricing, features available in a certain plan, customer service, etc. NPS® helps a business proactively identify these reasons and fix them before churn happens.

There is also another connected benefit of retaining loyal customers. Loyal customers are likely to ignore 6 instances of poor customer experiences. Detractors, on the other hand, abandon ship at the first instance and also spread negative word about the business.

The direct effect of a customer churn reduction is an increase in retention rates. Studies suggest that a 5 increase in retention can pump up your profits from 25% to 95% (Source).

Getting the boss to say ‘Yes’

Do you know what makes your boss’s work so difficult? There are hundreds of variables and metrics to be consulted and pored over to make a single decision.

What if there is a single metric that can take a quick decision? Net Promoter Score® is just that. It asks a single question to customers and collects their feedback in a segmented fashion. The responses help identify whether your customers are happy or not. NPS® also paves the way for improving products and services that your business is offering.

Present these facts about NPS® to the boss. It should be more than enough to convince him/her to adopt it.

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