NPS (Net Promoter Score) measures loyalty to a company's brand, products or services. NPS is part of relationship management, and the metric is uncomplicated to calculate. This post gives you a short glance at how it works.
Net Promoter Score is based on a simple question: 'How likely is it that you would recommend us to a friend or colleague?'
Answers are assigned a score from zero to ten, with ten being the most positive.
Customers are then divided into three categories:
- Promoters, with a score of 9-10, are the most loyal customers
- Passives with a score of 7-8 are satisfied yet unenthusiastic customers
- Detractors with a score of 0-6, are unhappy customers
The Net Promoter Score is calculated by subtracting the Detractors percentage from the Promoter percentage.
NPS was first introduced in 2003 in a Harvard Business Review article by Fred Reichheld entitled 'The One Number You Need to Grow.'
Paul Reichheld sensed that it was essential for a company to know how many of its existing customers were assets and how many were liabilities. Moreover, the metric can drive your company's internal priorities by correlating the customer's subjective response to an objective number.
NPS can be used as a KPI (Key Performance Indicator) for growth because brand loyalty is essential for generating sustainable development. Reichfeld's analysis found that companies with a sounder ratio of Promoters to Detractors grew more quickly than their competitors when they maintained an NPS within an overall 50-80.
Why NPS is important*
- Promoters account for 80 per cent of referrals in most businesses.
- Detractors account for 80 per cent of negative word-of-mouth.
- Promoters generally defect at lower rates than other customers, meaning they have longer, more profitable relationships with a company.
- On average, an industry's NPS leader outgrew its competitors by a factor greater than two times.
*Source: Net Promoter System, 2013
Succeeding research from others has questioned that conclusion. As a result, NPS detractors recommend that if an NPS score is used, it should be augmented with more questions to provide the company with insight into customer motivation to identify actionable items.
Although NPS has pros and cons, research studies show that NPS also correlates with business growth. In any case, the NPS is straightforward, allowing you to benchmark your company's results against others in your industry.
When Zooma and our friends use NPS, we use additional questions for insights and knowledge.
Would you like to know more about NPS?