Net Promoter Score (NPS). It’s the one number that almost every organisation seems to include in their management metrics and it’s easy to see why.
In the original Harvard Business Review paper where NPS was revealed to the world, its ‘inventor’, Frederick Reichheld, made some bold claims. Discussing his analysis of the link between a company’s NPS score and their commercial performance, Reichheld said: “The results were striking…a strong correlation existed between net promoter figures and a company’s average growth rate over the three-year period from 1999 to 2002”. This link has become received wisdom in the business world with many believing that a focus on improving NPS is a sure fire path to commercial success.
Three further features of NPS have secured its position as the must-have KPI:
- It’s easy to collect. Being based on one straightforward question (see here) which can be asked at multiple touchpoints without placing onerous demands on customers’ time, collecting NPS data is relatively straightforward
- It’s a focal point. Having just one number to rally the troops around gives a clear focus to activity and a definitive measure of success
- It’s intuitive. Underpinning NPS is the idea that if a customer is likely to recommend a business or product, then they themselves stay loyal and they spread positive word-of-mouth. The result? Existing sales are maintained and new sales drive growth. That logic is intuitive, and it’s this ‘common sense’ nature of NPS which makes it easy for everybody in the organisation to grasp
But hold on. There’s a problem. You see, the theory of NPS might be compelling, but it doesn’t always hold true in reality, especially in B2B environments.
At Circle, we like to challenge the received wisdom, so we put NPS under the microscope and questioned its very basis. Does NPS, we asked ourselves, reliably predict commercial performance in B2B environments? If not, then the concept is fundamentally undermined and NPS should be used with care, if at all.
To explore this question we took several years of NPS data gathered for multiple B2B clients. Using these NPS scores and the corresponding commercial performance data for each client, we ran a correlation analysis to establish if an improvement in NPS was indeed linked to improved financial performance. The result was mixed. In some cases, the correlation was strong, but in an equal number of cases, it was weak. Remarkably, as the example below illustrates sometimes the correlation was actually negative with a decrease in NPS being linked to an improvement in financial performance.
In other words, it seems that NPS doesn’t always work in B2B environments and should be used with caution, if at all.
So take a look at your own data to see if there really is a link between NPS and financial performance. If it works as the theory predicts, that’s great and you’ll reap all of the benefits that NPS can bring. But if you’re like many B2B organisations and find that NPS turns out to be a poor predictor of commercial performance, then think again. There’s no need to ditch NPS altogether as it’s still a useful measure of brand health, but it shouldn’t be the focal point for running your business.