What is NPS - Net Promoter Score & How to Calculate

What Is Net Promoter Score (NPS)

Net Promoter Score (NPS) is a widely used metric and methodology for measuring customer loyalty and gauging customer satisfaction. It was introduced by Fred Reichheld in 2003 through his Harvard Business Review article, “The One Number You Need to Grow.” NPS is widely adopted in various industries as a simple yet effective way to assess and track customer sentiment.

Here’s how NPS works:

Survey Question: NPS is typically gathered through a single survey question, which asks customers the following:

“On a scale of 0 to 10, how likely are you to recommend our [product/service/company] to a friend or colleague?”

Respondents rate their likelihood on this 0-10 scale, with 0 being “Not at all likely” and 10 being “Extremely likely.”

Categorizing Respondents:

• Promoters (Score 9-10): Customers who give a score of 9 or 10 are considered Promoters. They are highly satisfied and are likely to recommend your business to others.
• Passives (Score 7-8): Customers who give a score of 7 or 8 are considered Passives. They are satisfied but not enthusiastic or loyal.
• Detractors (Score 0-6): Customers who give a score of 0 to 6 are considered Detractors. They are dissatisfied and may even discourage others from using your products or services.

Calculating the NPS Score:

To calculate the NPS score, subtract the percentage of Detractors from the percentage of Promoters:

NPS = Percentage of Promoters - Percentage of Detractors.

The resulting NPS score can range from -100 to +100.

Interpreting the NPS Score:

• A positive NPS score (greater than 0) indicates that you have more Promoters than Detractors, suggesting overall customer satisfaction and loyalty.
• A higher NPS score generally indicates stronger customer loyalty and advocacy.
• A negative NPS score suggests that you have more Detractors than Promoters, indicating issues with customer satisfaction and loyalty.

NPS is valuable for businesses because it provides a clear and easily comparable metric to assess customer sentiment over time. It not only measures customer satisfaction but also helps identify areas for improvement and informs strategic decisions aimed at enhancing the customer experience.

Net Promoter Score (NPS) is important for several reasons:

1. Customer Satisfaction Measurement: It provides a simple and effective way to gauge how customers perceive your business.
2. Predictive Value: NPS is often correlated with future customer behavior. Promoters are more likely to make repeat purchases and refer others to your business, while detractors may churn or discourage others from engaging with your brand.
3. Actionable Feedback: The open-ended follow-up question in NPS surveys allows customers to provide specific feedback. This feedback can be invaluable for identifying areas for improvement and making targeted changes.
4. Benchmarking: NPS allows you to compare your performance with industry benchmarks or competitors. This helps you understand where you stand in your market and where there may be room for improvement.
5. Employee Engagement: NPS can also be used internally to measure employee engagement and satisfaction. Happy employees are more likely to provide excellent customer service, which can positively impact NPS.
6. Strategic Decision-Making: NPS data can inform strategic decisions and resource allocation. For example, if you have a low NPS, you may prioritize initiatives aimed at improving customer satisfaction.
7. Brand Reputation: A high NPS score can enhance your brand’s reputation and trustworthiness. Customers are more likely to choose businesses with a strong track record of satisfying their customers.
8. Customer Retention: Improving NPS can lead to higher customer retention rates. Satisfied customers are less likely to switch to competitors, which can reduce customer acquisition costs.

Remember that NPS is just one part of your customer feedback strategy. It’s valuable when combined with other feedback mechanisms to get a comprehensive understanding of customer satisfaction and loyalty.