How to take Net Promoter Score® to the next level to measure customer loyalty and future growth

NPS Origins

NPS® stands for Net Promoter Score.

It was developed in 2003 by Fred Reichheld at Bain & Company and introduced in the Harvard Business Review (HBR) article titled The One Number You Need To Grow.

NPS measures the likelihood of customers recommending a product, service, or brand, indicating the brand’s customer loyalty.

NPS is a good indicator of a company’s referral potential and customer loyalty.

The Golden Rule states ‘One should treat others how one would like to be treated’.

NPS tracks the Golden Rule behavior for a company quite well.

NPS Measurement

^{Source: GatherUp CX}

The NPS question is: How likely is it that you would recommend this company to a friend or colleague?

The frequency of NPS surveys is usually monthly, quarterly, or yearly.

NPS score can range from +100 to -100.

An NPS of +50 is considered good.

The average benchmark for retail is +41.

Apple retail has an NPS score of 90+, one of the highest scores in retail.

NPS as a lagging/leading metric

NPS has traditionally been considered a lagging metric i.e. it measures the outcome of customer loyalty/advocacy, rather than the factors that drive those outcomes (Kapiche.com).

NPS can be turned into a leading metric by correlating with other key metrics, such as revenue and customer lifetime value, which can predict the trajectory of the business (Kapiche.com).

NPS feedback can also be used to guide future product development which can predict the impact on business KPIs (Kapiche.com).

Taking NPS a step further

Alongside NPS, most medium-big companies also measure employee NPS aka eNPS.

eNPS is an employee engagement metric that measures how likely employees are to recommend their company to a friend or colleague.

Hubspot with an eNPS of 71 has the highest score in the SaaS vertical.

Apple’s eNPS score was 21. Apple believes that employee satisfaction is directly correlated to customer satisfaction, so it is important to measure both.

Affinity Index = NPS + eNPS

Affinity Index measures the pulse of a business's health by combining the customers' willingness to recommend the products and the employees' willingness to recommend the company as a workplace (Affinity OS).

Challenges with NPS

NPS scores from self-administered surveys -- and those done without double blinding methodologies -- can be inflated

The design of the survey, the timing, and the frequency of data collection can impact the effectiveness of NPS.

Poor response rates and inconsistent data collection can lead to inaccurate results.

NPS can also be manipulated and is not a reliable indicator of future growth

Taking NPS to the next level

Earned growth rate (EGR) was introduced by Fred Reichheld in 2021 in the HBR article titled Net Promoter 3.0.

EGR measures revenue growth generated by returning customers and their referrals.

EGR = NRR + ENC - 100%

NRR (Net Revenue Retention) = % of current period revenue from retained customers from the previous period/previous period's total revenues.

ENC (Earned New Customers) = % of revenue from new customers earned through referrals only (not advertisements).

The key question to track referrals is: How did you hear about us?

Mention Me is an excellent platform to identify customer advocates and track referrals.

How EGR beats NPS (with an exception)

Unlike NPS, EGR can't be manipulated and can be used by investors/C-level execs to determine future growth potential.

EGR is based on actual revenue data, rather than on survey responses and is a more reliable metric than NPS.

EGR is also a more accurate measure of customer loyalty and future growth.

The only downside of EGR is, it's a complex metric and difficult to track over time, and can't be benchmarked as it's not widely used.

Summary

Use Earned Growth Rate (EGR) to accurately measure customer loyalty and future/profitable growth.

Use well-designed and frequent NPS surveys to get valuable customer feedback and close the loop by actioning this feedback.

Prioritise Promoters aka Superfans over new customers.

Superfans will stay with your business for longer, spend more and refer their friends and family, generating more business for your company.

P.S I highly recommend listening to this Affinity Podcast on Master NPS.

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Until next time,

Sush