Especially to determine the degree of customer loyalty to your project, the NPS index was created.

What is NPS customer loyalty index?

The NPS (Net Promoter Score) customer loyalty index is a metric that companies use to determine the attitude of customers towards them.

See also Customer Loyalty Program: 6 Metrics to Measure Customer Loyalty

Companies with high NPS have more opportunities to grow and profit in the long run.

How likely would you recommend this company to a friend?

Answers are based on a ten-point scale.

What formula is used to calculate the NPS index

Depending on the responses of buyers, they should first of all be divided into three following groups: supporters, neutral consumers and critics.

• Supporters (customers with a score of 9-10). They can be described as brand ambassadors who are enthusiastic about the company.
• Neutral consumers (customers with a score of 7-8). People with a neutral attitude towards the company, who would not spoil the reputation of the brand.
• Critics (customers rated 0-6). Unsatisfied customers who can damage a brand's reputation with bad reviews.

After allocating your customers to the appropriate groups, you need to calculate the company's NPS index using the percentage of supporters and detractors. Neutral consumers do not participate in the calculation.

NPS Formula

Company NPS = (% supporters - % detractors) x 100.

For example, if the survey results were 70% rated 9 or 10, and 10% rated 1-6, the result would be (70% - 10%) x 100 = 60.

NPS 60 is a very good number as most of the clients are supporters.

What values ​​can the NPS index take?

NPS can vary between -100 and 100, with -100 being the worst and 100 being the best. In general, an NPS above 30 is considered good, above 50 is excellent, and above 70 is excellent. Negative NPS is considered a bad result.

But before you set your sights on getting an NPS of at least 70, you need to take into account your niche, product offering, and pricing. Each company is unique, and there is no exact definition of what is considered a good indicator.

How do you determine if a company's NPS is good enough for its niche? Below are the NPS scores for various industries based on the Net Promoter Score Benchmark.

Why is it important to calculate the NPS index

The NPS customer loyalty index provides invaluable data on the overall mood of your customer base. Tracking your NPS index helps you effectively measure customer loyalty and satisfaction so companies can work on improvements. This is why many Fortune 500 companies regularly conduct NPS surveys.

In addition to receiving customer feedback, NPS also helps reduce customer churn (when a customer ends their relationship with a company). According to a study by Bain and Company, "supporters" tend to have longer and more profitable relationships with companies. Knowing all this, a company can focus on turning "neutral consumers" and "critics" into "supporters" by giving them best quality goods and services.

NPS Index Caution

Many companies, large and small, make the mistake of obsessing over NPS scores. While this is a very useful metric to track, customers shouldn't be treated like numbers. Regardless of the metric, when a customer takes the time to review, it's a great opportunity to deepen the connection with them.

Loyalty cannot be earned with numbers. Both before and after the survey, you need to build relationships with customers.
The challenge for the business is to measure NPS, seize the opportunity to engage in an open dialogue with customers, grow your business, products and services, and ultimately see how the satisfaction rate has grown.

conclusions

Many companies use the NPS index as a solution to measure customer loyalty and satisfaction. However, these data are valuable if and when the company acts on them. It is necessary not only to find out the NPS indicator, but also to understand what exactly led to such a result.

Also, do not focus on convincing critics - encouraging discussions with supporters are also useful. NPS is not just a number. When used correctly, it can solve user problems, improve processes, and spark innovation.

NPS customer loyalty index - what is it and calculation formula with examples

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Based on materials:, 10/12/2017

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The resource NPSBenchmarks.com - a repository of data on indices of global companies Net Promoter Score (consumer loyalty index) - published information on best practices in the field of service. According to the results of calculations, high NPS values ​​in industries: technology - 61%, consumer goods - 46%, hospitality - 52%. World retail leaders Amazon and Costco (industry leaders in the top 100 international companies by market cap) NPS is 69% and 79% respectively.

Unfortunately, in Russian practice there are no consolidated data on loyalty, and NPS as a method of assessing loyalty is far from being used everywhere. UBS Evidence Lab has published figures for Russian retailers: of the 14 largest players, five have positive values. The highest NPS was received by Lenta - 7% and Okay - 3%. In the banking sector, Sberbank's loyalty reaches 59%, in telecommunications Tele2 - 35%, Megafon - 17%, Beeline - 25% . And if more and more companies appear in the West, for which the connection between the level of service and staff motivation is obvious, then in Russia business still rarely thinks about it. In a HeadHunter survey, 96% of participants answered that HR should not be engaged in internal and external customer focus at all.

The main problem of Russian companies is still the gap between plans and deeds. In particular, the study, which involved 419 Russian companies from 39 regions of Russia, revealed a dissonance between real business processes and declared values. Another contradiction, according to a study in which 313 Russian companies took part, was the fact that managers willingly declare the primacy of the client's interests, but do not take any action to assess their satisfaction. A common problem for companies in low-competitive markets is that the first ones to enter set records for profits and growth rates, assuming business building is the secret to success. As a result, an extremely small number of players pay serious attention to service and the struggle for customers. Why do something if everything is fine anyway? And this is the main trap for owners. No one thinks that the reason for success is simply the lack of competition.

In the West, in a saturated market, more and more companies are building their strategy on customer service. If we compare the dynamics of consumer opinion and company value, the connection is obvious. Thus, the capitalization of Amazon in 2000 amounted to $16.62 billion, in 2010 - $58.76 billion, in 2016 - $422.83 billion. Thus, an increase of more than 25 times with an NPS of 69%. At the same time, Walmart, which became famous big amount negative from buyers, capitalization fell from $239.44 billion in 2000 to $222.02 billion in 2016. The most successful example is Apple, whose market value exceeds the total capitalization of public Russian companies. The company was the first to raise customer experience to the rank of corporate strategy. Building a sales system at Apple, top management removed revenue from sellers' KPIs, leaving them with NPS indicators and time spent on customer service. Steve Jobs believed that if you start working at the level of emotions, turning every stage of interaction into pleasure for both customers and employees, they will repay with their loyalty. As a result, Apple's customer satisfaction reached 89%, profit per employee exceeded $110,000, and revenue was $500,000 for the year.

The focus on service is the prerogative of not only companies focused on the above-average segment. An example of this is the American low-cost carrier Costco, the world's largest chain of club-type self-service stores. Annual membership in the Costco club system in the US and Canada costs from $55 to $110, in Spain from €25 to €30, and in the UK £20. Costco stores have hearing aid sales centers, opticians, gas stations, and many other related services. At the entrance to the hypermarket there are greeters, whose task is to greet the guest. Capitalization of Costco in 2000 was $18.03 billion; in 2010 - $25.7 billion, in 2016 - $73.91 billion. The value of the company has quadrupled with an NPS of 79%, and profit is $2.35 billion.

Few in Russia have yet realized that loyalty is as important as EBITDA. Some major players are making efforts to change the structure towards a customer-centric approach. Aeroflot's NPS, which has seriously changed the approach to service since the arrival of Vitaly Savelyev, has grown from 44% in 2010 to 72% in 2017. In 2016, the company's capitalization for the first time reached a maximum of 116 billion rubles. Alas, this is more the exception than the rule. For many, the NPS remains a formal indicator: the NPS of the Pobeda airline, which only the lazy did not scold, was 72% against 67% of Aeroflot in 2015.

At the same time, young Russian companies are finding interesting solutions, using the service as their main competitive advantage. Oleg Tinkov returned to the Forbes rating this year, in particular due to the fact that he approached the creation of the Tinkoff Bank service in a completely new way, which took second place in the popular vote of banki.ru. There are no queues in the bank, all documents are delivered to customers by "representatives". The office space is an open open-space, and the atmosphere resembles a democratic IT company rather than a strict bank. Clients receive prompt service and a user-friendly interface, and Tinkov receives a highly motivated and dedicated team.

It should be obvious to business that external loyalty never comes before internal. The return of employees also depends on it, because labor productivity is the main point of growth. The revenue per employee of the Western low-cost airline Costco exceeds $610,000 per year. For comparison: a good result in Russia in retail hardly exceeds $100,000. It is worth looking for a solution in working with the motivation and involvement of employees. In 2014, economists at the University of Warwick proved that employee productivity increases by 12% or more when they are happy.

In the Russian HR management system, this issue is practically not given attention, however, market experience shows that the mood of the team is directly proportional to labor productivity. A few years ago, at Uyuterra, we fundamentally changed the way we manage our field employees, transforming the manager from a "boss" into a leader and mentor. We launched large motivational programs based on gamification (the use of games in training and staff rallying). We relied on non-material motivation, included the mood of employees in the list of KPI managers, and began to cultivate a feat for the sake of the client. As a result, productivity growth more than doubled in two years. Last year, we launched a similar project with the Far Eastern hypermarket chain Samberi, collecting more than 2,000 examples of outstanding service in a few months, when employees did more for the client than required by the standards. At the end of the year, more than 60% reached NPS, which is almost impossible for hypermarkets. Now the company is approaching revenue of 50 billion rubles.

Measuring customer loyalty

What is Net Promoter Score (NPS)?

"NPS" is an abbreviation for Net Promoter Score, which can literally be translated as "Net Promoter Index". The NPS methodology as a tool for measuring customer loyalty was proposed in 2003 by Fred Reicheld in the Harvard Business Review. With the goal of identifying which metrics are most associated with customer loyalty, Fred Reicheld analyzed massive amounts of data and came to the conclusion that the willingness to recommend a company to friends and acquaintances is most strongly correlated with actual loyalty. The NPS methodology he created is based precisely on the willingness to recommend a company as the only indicator of loyalty.

For several years of its existence, this technique has gained wide popularity in the world due to its simplicity and operational efficiency. Based on NPS measurements, accepted management decisions, branches open and close, bonuses are paid or not paid, etc.

How is the NPS index calculated?

The essence of the methodology for measuring customer loyalty in the NPS model is quite simple. It is built on the basis of two main questions asked by the company's customers (see the diagram above). Moreover, it is fundamentally important to ask current customers, and not former or potential ones. The first and main question is: “How likely is it that you will recommend company X to your friends/acquaintances”? The client rates on a scale from 0 to 10, where 10 means “definitely recommend”, and 0 means “definitely do not recommend”. Further, based on the answers, customers are divided into three groups:

• "Promoters" (in the original "promoters") - those who gave marks 9 and 10. According to Reicheld, these are customers who, in high degree are loyal to the company and are very likely to recommend it to their friends.
• "Neutrals" (in the original "passive clients") - who gave ratings of 7 and 8. They are considered "passive" clients who are not only very ready to recommend the company, but not very dissatisfied with it either.
• "Criticists" (in the original "detractors") - who gave ratings from 0 to 6 - are dissatisfied customers who are more likely not to recommend the Company to their friends/acquaintances, and, moreover, may even "advise" to use its services.

Actually, the NPS index itself is calculated as the difference between the percentage of "promoters" and "critics" and shows the level of customer loyalty. The final value can vary from -100 (if 100% of the company's customers are "critics") to +100% (if all customers are "promoters").

In addition to the NPS index itself, the question is also asked about the reasons for the assessment in order to identify the main drivers and barriers to loyalty. This question can be either open or closed in the form of scale ratings on several parameters.

NPS was invented at the beginning of the 2000s, but in Russia the index is still not in great demand. We will tell you how the index is calculated and used in business, and about polar points of view on its effectiveness.

NPS is a mirror of customer loyalty and an indicator of a company's future growth. Literally from English, Net Promoter Score can be translated as "a general indicator of supporters", and a popular translation in Russian is the consumer loyalty index.

You will easily find a brief history NPS: The metric was invented by Frederick Reicheld, who wrote about it in the Harvard Business Review, and then, together with Bain, began to introduce it into American companies. But before that, Reicheld explored the relationship of various questions you can ask a client to business growth rates among fourteen companies. Only after testing all the possible questions, he settled on one thing: are you ready to recommend the company?

Articles about NPS often miss the original reason and motivation that led Reichheld to consider this metric to be the main and only important one: a loyal customer is a company's freelance marketer. Customers who love the company may even leave it, but still recommend it to acquaintances, friends and colleagues. For this reason, the consumer loyalty index is directly related to the growth of the company.

The consumer loyalty index shows the company's growth prospects.

How to calculate NPS?

The consumer loyalty index shows how many supporters or promoters the company has - people who are ready to recommend the company to their surroundings. It is calculated based on the answers of the clients themselves - those who used the services, not potential buyers. The process is:

1. the company asks the question: “How likely are you to recommend us?”;
2. customers answer on a scale from 0 to 10, where 0 means I would never recommend you, and 10 means I will tell everyone how great you are;
3. segments are distributed according to the answers: those who answered from 0 to 6 (critics), 7–8 (neutrals), 9–10 (supporters or promoters);
4. calculate the percentage of each segment;
5. the percentage of critics is subtracted from the percentage of supporters - this is NPS.

You need to collect index data regularly, but not too often. Companies have different approaches to collection: once a month, once every six months, after each contact with the buyer.

A little more about segments:

• supporters - put 9-10 points of recommendation probability, these are loyal customers;
• neutrals - put 7-8 points, these are indifferent customers, they will not recommend;
• critics - put 0–6 points, these are customers who did not like contacting the company so much that they are ready to leave negative feedback.

The lowest score is -100 when the company has only critics, the highest is 100 when all the company's customers become its supporters. A good indicator is a figure above zero.

Example:
At the end of this article, we ask readers: Are you ready to recommend the article to your colleagues or acquaintances?
50% of readers give 9 or 10 points, 30% of readers give 7 or 8 points, 20% give from 0 to 6 points - the article seemed so bad to them.
Subtract: 50% - 20% = 30 - this is our NPS (and it's pretty good).

Opponents of the index (and supporters of their own metrics) write that one question cannot predict either company growth or loyalty itself. The creators of the index answered this in advance: use additional questions. Ask customers after the answer: what did you not like that caused such a high rating of our company.

“Are you ready to recommend us to your friends” is not the only possible question, and it should not be. It is convenient to use, but for effective research it is worth asking one or two clarifying questions. For example, at the end of an article, we could ask critics: what was superfluous in the article? what was missing from the article?

Net Promoter system, customer focus, bad and good profit

What you read in the previous part of the article is the past of the index, because over time it has grown from one question to the system. This is often forgotten to be told and NPS is left with "glory" just numbers, one of many in the company's annual report. A misunderstanding of the tool usually gives rise to disappointment after the introduction of the metric in the company: "we tried - no effect."

Net Promoter System is a customer-centric business strategy centered on measuring customer loyalty using the NPS index.

The introduction of the system requires a reorganization of the business, because at every level of the company, from managers to executives, the goal must be to create a positive customer experience and establish long-term and strong relationships with customers. And it sounds abstract enough to be difficult when introduced into a real business, where the seller's goal is to put the squeeze on by any means, the operator's goal is to endure the shift, and the marketer's goal is to pass a beautiful report.

But as idealistic as the goal of the system may sound, it works in Fortune 500 companies.

One of the key details of the Net Promoter system is the relationship between customer ratings and employee actions, or "feedback closure", which provides real work instead of a meaningless index calculation. The company collects customer ratings, analyzes, contacts critical customers and gives feedback to employees - so they know which customer should have been treated differently, and in general understand the responsibility for each contact with customers.

There are two types of profit in the system: good and bad. Good profits are made by actions that earn the trust of buyers, bad profits are made at the expense of trust and future relationships. For example, you can sell stale goods at a discount and upset customers with stale products - this is a bad profit, although it will allow you to get a short-term profit.

Application of NPS

You can also find specific NPS numbers by various industries businesses and companies. For example, there are NPS benchmarks (paid access) for various industries from Satmetrix, a software developer for measuring the index. And here are benchmarks from Npsbenchmarks (free access).

But benchmarks are good, but understanding your business is better. How to understand what NPS is good or sufficient?

Mike Gowan, co-owner of Delighted writes:

• score from -100 to 0: most people have a negative experience with your company and advise others to never contact you;
• 1–30: Normal score, but room for improvement
• 31–50: This is where the majority is. Companies from this layer care about the customer experience and most often make it memorable;
• 50-70: These companies care even more about customer service, and they are among the most loved by customers;
• 71–100: The holy grail is an almost unattainable ideal reserved for the best companies in the world.

Another way to understand if the NPS index is high enough is to answer questions like these:

• Is your NPS higher than your competitors?
• Is it above zero?
• Is your score growing?

If you answer "yes" to all three questions, that's good. But that doesn't mean you can stop trying. The Net Promoter system has no end goal other than continuous improvement.