What is NPS®? An Introduction to Net Promoter® Score
Why are so many executives focused on Net Promoter® Score (NPS®)? Many believe NPS is a valuable metric for growing both revenue and profits. Research suggests that higher NPS scores indicate more loyal customers, which leads to more revenue and higher profits. So all you have to do is increase NPS for better results—easy, right? Unfortunately it’s not that simple. Let’s dive in to learn more about NPS and how it can help you.
Promoters, Passives and Detractors – Oh my!
Determining where any specific customer falls in the Promoters to Detractors spectrum comes down to asking one simple question:
“How likely is it that you would recommend [Company X] to a friend or colleague?”
The respondent is then given a standard scale that ranges from 0 (not at all likely) to 10 (extremely likely). Based on how a customer responds to “the question,” the customer is classified into one of three buckets:
• Promoters = 9s and 10s
• Passives = 7s and 8s
• Detractors = 0s through 6s
Promoters are best described as your customers who are loyal and enthusiastic about your company and will continue buying and referring others. Promoter referrals fuel viral growth that you don’t have to pay for. The cutoff for Promoters is intentionally high at 9 to ensure that the customer is an exceptionally enthusiastic fan.
Passives are generally satisfied customers, but lack the enthusiasm seen in the Promoter group. A 7 or an 8 rating is no doubt impressive, but research has found that this group is vulnerable to competitive offerings and is therefore not immune to defection.
Detractors are a potentially dangerous bunch who are often unhappy and can diminish your brand through negative word of mouth. A customer who rates your company between a 0 and a 6 requires proactive outreach to resolve issues before damage is done.
Once each customer is classified into a respective group, your company’s NPS score can be calculated by subtracting the percentage of Detractors from the percentage of Promoters. The score is generally displayed as a whole number by dropping the percent sign for the final number. Here’s a handy graphic to sum up the basics:
NPS and why it matters
The Net Promoter Score is a loyalty metric developed by Fred Reichheld. At its core, the Net Promoter Score tracks how customers represent a company to their friends, families and associates. Reichheld argues that this customer representation is free marketing that dramatically influences business growth.
Analysis completed by Bain shows that sustained value creators (companies that achieve long-term profitable growth) have Net Promoter Scores two times higher than the average company. Apple is often cited as a case study for high NPS that correlates to phenomenal growth.
Supporters of NPS
Companies often have a hard time rallying an entire organization in a common, customer-focused direction. NPS supporters claim that focusing on a single customer satisfaction metric—that is visible and easy to understand—makes motivating an entire organization to be customer-focused is easier to implement and manage. Although NPS lacks detailed information on customers, the sheer simplicity of the measurement makes taking action significantly quicker and more effective.
A goal we can all agree on
Although NPS has its fans and critics, the most important thing to remember is that customers have more power than ever to voice their opinions—opinions that can build or damage your brand. NPS is just one way to measure loyalty and is often successfully used with many other customer satisfaction questions. But I think we can all agree that every company needs loyal customers. And whether your organization uses NPS or another measurement of customer loyalty and satisfaction, we need to find what works best for our unique situation to continue improving the customer experience.
* NPS®, Net Promoter® & Net Promoter® Score are a registered trademark of Fred Reichheld, Satmetrix, and Bain & Company.