Why is this important?
Understanding how satisfied and how loyal your customers might be is important for any company to know because happy and returning customers are likely to grow future revenues and profits.
The problem is that most customer surveys are complex, expensive and hard to interpret. In response to this, the net promoter score (NPS) was developed as ‘the one number you need to know’ based on just one simple question: How likely is it that you would recommend [company X or product Y or service Z] to a friend or colleague?
The NPS is based on the fundamental premise that every company’s customers can be divided into three groups:
This allows an organisation to track these groups and get a clear measure of their performance through its customers’ eyes. Moreover, and of critical importance, empirical research has shown that there is a striking correlation between the customer’s grouping and actual behaviour – repeat purchase and referral patterns– over time.
Further research mapped the growth rates of companies with high NPS scores and in comparison to their competitors. The results were striking. In most industries, this one simple statistic explained much of the variation in relative growth rates; that is, companies with a better ratio of Promoters to Detractors growth rates; that is, companies with a better ratio of Promoters to Detractors tend to grow more rapidly than competitors.
NPS is a straightforward metric that holds companies and employees accountable for how they treat customers. When combined with appropriate diagnostics and follow-up actions, it drives improvements in customer loyalty and enables profitable growth.
With respect to Customer Perspective, below are a few KPI's which a businessman should be mindful of:
Net promoter score (NPS)
Customer retention rate
Customer satisfaction index
Customer profitability score
Customer lifetime value
Customer turnover rate