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Why a Net Promoter Score is the Best Customer Loyalty Metric

by sambit
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How do you measure customer loyalty? Do you track the number of repeat customers you get? Do you monitor the internet for comments about your brand to see if your customers are talking about you?

Measuring customer loyalty online is a little more challenging than measuring customer loyalty for a brick-and-mortar business. However, there’s a new method you can use to measure customer loyalty and it’s called a Net Promoter Score (NPS).

What is a Net Promoter Score (NPS)?

The Net Promoter System was created in 2002 specifically to measure customer loyalty and business growth.

A Net Promoter Score uses first-hand feedback to measure customer loyalty. For instance, customers are sent a simple survey after a purchase that includes one question: How likely are you to recommend [business name] to a friend? The customer can select a number from 0-10, with 0 being “not likely” and 10 being “very likely.”

After the customer answers the question, the customer is prompted to share more about their answer as open-ended feedback. This step is what sets NPS apart from other surveys. Customer satisfaction surveys are often unintentionally biased. NPS eliminates the potential for biased survey questions.

How Customer Surveys Determine Your NPS

Each time a customer submits a survey, it’s segmented into one of three groups.

Group 1: Promoter

Surveys fall in this group if the customer gave a rating of 9 or 10

Group 2: Passive

Surveys fall in this group if the customer gave a rating of 7 or 8

Group 3: Detractor

Surveys fall in this group if the customer gave a rating of 6 or below

The system subtracts your percentage of detractors from your percentage of promoters. The result is a score that ranges from -100 to 100 that represents your general customer experience.

NPS isn’t Just Another Metric

Focusing on your NPS is important because it correlates to revenue growth. For example, businesses with higher revenue tend to have higher NPS scores. The higher NPS scores are held by organizations with happy customers who use word-of-mouth to promote the business; many of those happy customers are brand ambassadors.

Why is Customer Loyalty Hard to Measure?

It’s easy to identify all the factors that will help you measure customer loyalty. All you need to do is know your customer churn rate and your customer retention rate. However, it’s not that simple to measure. For instance, you have to set up complex software applications to measure a whole bunch of metrics if you want to know your customer churn rate. Calculating your customer retention rate is even more involved.

With the right software, it’s not hard to measure customer loyalty. What makes it hard is finding the right tools, setting them up, and knowing how to analyze the data. There’s also one more reason customer loyalty is hard to measure. Many people don’t have a firm grasp on what defines customer loyalty. It seems obvious on the surface, but it’s nuanced.

What is Customer Loyalty?

When you think of customer loyalty, you might picture people who are loyal to one brand over all others. For example, there are people who will only buy coffee from Starbucks and will pass on the opportunity to grab a coffee from Peet’s Coffee or any other chain. While that can be a sign of loyalty, it’s not a complete picture.

A loyal customer isn’t someone who refuses to shop for other brands. In fact, your most loyal customers are also buying from your competitors. Loyalty isn’t defined as exclusivity. According to the Oxford dictionary, loyalty is “a strong feeling of support or allegiance.”

Customers can feel a strong sense of support or allegiance to multiple brands. The key, then, is to get your customers to feel that strong sense of support or allegiance to your brand regardless of their support for other brands.

Customer loyalty also includes behavioral loyalty. For example, an article in Forbes explains that loyalty includes purchases made to get a reward, like points. The article also explains how people have formed an emotional loyalty to Disney, which is an interesting way of looking at loyalty.

Knowing Your Net Promoter Score Will Help You Retain Customers

Tracking your NPS score over time will tell you where you stand with your customers and will generate specific, actionable feedback. With that feedback, you can improve your score. If you want to lower your customer churn rate while increasing customer retention, you need to start using the Net Promoter System.

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