Business Metric #6 of N: Net Promoter Score (NPS)

Standard

In this post, you’ll see the definition, benefits and basic calculation tutorial for using Net promoter score (NPS)

What is it? 

Net Promoter Score is a nice indicator to measure customer loyalty and satisfaction. The way you do that is by measuring how users likelihood to recommend your products/services. You can do this by asking a simple question: In a scale of 0-10, How likely are you to recommend to a friend?

Here’s how you calculate it: 

1) After you get responses, you need to classify the range in three categories “Promoters”, “passive”, “Detractors”. It could something like:

0-5 -> Detractors

5-8-> Passive

9-10 -> Promoters.

2) Now, here’s the formula

(Total promoters – Total detractors)/(Total survey users)

How to interpret it? 

So, what’s a good NPS?

Let’s take an example.

1) Promoters = 100, passive = 100, detractors = 100 THEN NPS = 0

2) Promoters = 50, passive = 100, detractors =  10 THEN NPS = 0.25 (or 25%)

3) Promoters = 10, passive = 100, detractors = 50 THEN NPS = -25%

As a basic rule of thumb, higher the number then better it is for you! You don’t want this to be negative because as you can see from example below it indicates that you have more detractors then promoters.

Other than general rule of thumb, you might want to keep an eye on the trend of NPS on a monthly/quarterly basis to make sure it’s moving in right direction. You might also want to benchmark this against your Industry standard – because NPS tends to be different for different industries.

Conclusion:

In this post, you learned about Net Promoter score and how to use it to measure customer loyalty and satisfaction.

Business Intelligence system – Customer Complaints – B2B company:

Customer complaint dashboard quality feedback
Standard

Analyzing customer complaints in crucial for customer service & sales teams. It helps them increase customer loyalty and fix quality issues. To that end, here’s a mockup:

Note: Drill down reports are not shown, details are hidden to maintain confidentiality and numbers are made up.

Customer complaint dashboard quality feedback

Business Metrics #2 of N: Customer Retention Rate

Standard

In this post, We’ll explore a Business metric called “Customer Retention Rate”

What is it?

It is a metric that helps an organization monitor the % of customers retained.

Let me give you an example:

Year Number of Customers Retention Rate
0 100 100%
1 85 85%
2 70 70%
3 65 65%
4 61 61%

Do you notice the third column that keeps a tab on the percentages of customer retained? This is the basic Idea behind customer retention rate.

How is it used?

This metric correlates with other key business performance measures like: customer service, product quality, customer loyalty. Think about it. If the customer retention rate is higher than the organization must be doing “something” right – that something could be: great loyalty program, great customer service or great product quality! If it’s low then it requires some action from decision makers – they would want to know the reasons so that they could fix the situation.

In earlier post, we talked about Customer Lifetime Value – now higher customer retention rate would also help us have a higher customer lifetime value.

Also it’s important to realize that the cost of acquiring a new customer is typically higher than keeping existing customer – and so organization that sells products/service like to measure the customer retention rate.

Also, if you customer data then you can drill down to find trends in the retention rate. Questions like: Which Age group has the highest retention rate? or which has lower? Retention rate for male customers? And also predicting customer retention rate of a new customer?

Conclusion:

In this post, we learned about a business metric “customer retention rate”.

And as a reminder, This series is meant to understand Business Metrics from Analytics Perspective.