The Net Promoter Score (NPS) development can be traced back to business strategist and author Fred Reichheld. In 2003, Reichheld introduced NPS in his Harvard Business Review article “The One Number You Need to Grow.” He aimed to create a simple yet effective metric to measure customer loyalty and accurately predict business growth.
Reichheld realized that traditional customer satisfaction surveys often yielded complex data that was difficult to interpret and act upon. He wanted to simplify the process by focusing on one fundamental question: “How likely are you to recommend our product or service to a friend or colleague?”
By framing the question this way, Reichheld aimed to capture customers’ satisfaction levels and willingness to advocate for the brand. He believed that word-of-mouth recommendations from satisfied customers could drive organic growth and long-term success for businesses.
Since its inception, NPS has become a widely adopted metric across industries, with countless companies utilizing it to evaluate and improve customer experiences.
What is the Net Promoter Score (NPS)?
Net Promoter Score (NPS) measures customer loyalty and satisfaction. It asks one key question:
“On a scale from 0 to 10, how likely are you to recommend our product/service to a friend or colleague?”
Based on their responses, customers are categorized into three groups: Promoters, Passives, and Detractors. NPS captures complex customer sentiments in a single number, aiming to give businesses a quick snapshot of how well they’re doing in the eyes of their customers.
Over the last few decades, NPS has gained widespread adoption across industries because of its simplicity and effectiveness.
Why is NPS important?
Knowing how loyal their customers are is essential for businesses. It helps companies achieve many other goals related to customer loyalty.
- Predicts Business Growth: Research has shown that companies with higher NPS scores tend to experience faster growth and higher profits. A strong correlation exists between NPS and business growth, making it a valuable tool for predicting future success.
- Drives Customer-Centricity: By focusing on customer loyalty and satisfaction, NPS encourages businesses to adopt a customer-centric approach. Companies prioritizing customer feedback and striving to improve NPS scores are more likely to succeed.
- Encourages Actionable Insights: Unlike traditional customer satisfaction surveys, NPS is designed to be simple and actionable. It provides a clear numerical score that can be easily understood and communicated across the organization. This simplicity encourages businesses to take concrete actions to address customer feedback.
- Facilitates Benchmarking: NPS enables businesses to benchmark their performance against industry standards and competitors.
NPS is a powerful tool for businesses to measure, understand, and improve customer loyalty and satisfaction, ultimately driving long-term success and growth.
Net Promoter Score scale:
The scoring system divides customers into three categories:
- Promoters: These are customers who rate their likelihood of recommending the product or service with a 9 or 10. They are enthusiastic about the brand, often becoming loyal advocates.
- Passives: Customers who give a score of 7 or 8 fall into this category. While they may be satisfied with the product or service, they are less likely to promote it actively. They are neither strong advocates nor detractors.
- Detractors: These customers rate their likelihood of recommending the product or service with a score between 0 and 6. They are dissatisfied and may spread negative word-of-mouth, potentially harming the brand’s reputation.
How to Run an NPS survey
Implementing an NPS survey involves a few key steps to ensure accuracy and effectiveness. First, determine the timing and frequency of your surveys. Consider sending them after specific touchpoints in the customer journey, such as after a purchase, interaction with customer service, or project completion.
Next, craft a clear and concise NPS question: “On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?” Keep the survey short and straightforward to encourage higher response rates.
Choose your survey distribution method based on your audience’s preferences and accessibility. Options include email, SMS, in-app notifications, or even printed surveys for in-person interactions.
How to calculate NPS
- Segment Responses: Categorize respondents into three groups based on their scores:
Promoters: Those who respond with a 9 or 10.
Passives: Those who respond with a 7 or 8.
Detractors: Those who respond with a 0 to 6. - Calculate Percentages: Calculate the percentage of respondents in each group. For example, if out of 100 respondents, 60 are Promoters, 20 are Passives, and 20 are Detractors, the percentages would be:
Promoters: 60%
Passives: 20%
Detractors: 20% - Calculate NPS: Subtract the percentage of Detractors from the percentage of Promoters to obtain the Net Promoter Score. Using the example above:
NPS = % Promoters – % Detractors
NPS = 60% – 20%
NPS = 40
How to Interpret Net Promoter Score
What does your business’s NPS score mean? Let’s explore what a good or bad NPS score is.
Good NPS Score:
NPS scores can range from -100 to +100. Generally, any positive score is considered “good,” but the interpretation may vary depending on the industry and specific circumstances.
A score above +50 is typically considered excellent and indicates high customer loyalty and satisfaction.
Companies with high NPS scores often have a large base of loyal customers who are likely to promote their products or services to others.
Bad NPS Score:
A negative NPS score suggests that you have more detractors than promoters, indicating significant customer dissatisfaction.
While any negative score warrants attention, scores below -50 are typically considered very poor and may indicate serious customer experience or product/service quality issues.
Companies with low NPS scores may need help with customer retention, face increased churn rates, and experience challenges in attracting new customers due to negative word-of-mouth.
While a negative NPS indicates room for improvement, it also presents an opportunity for growth. If companies listen to customer feedback and take proactive steps to improve the customer experience, they can turn detractors into promoters and drive positive word-of-mouth.
NPS is a significant metric, but it’s just one piece of the puzzle. It’s important to analyze trends over time, benchmark against industry standards, and consider the competitive environment. By leveraging NPS alongside other metrics and qualitative insights, you can develop a holistic strategy for improvement.
What can you do with your NPS score?
Your NPS can help you drive actionable strategies to improve customer satisfaction and loyalty. Here are several ways you can leverage your NPS score:
- Identify Strengths and Weaknesses: Analyze your NPS score to identify areas where your company excels (Promoters) and areas that need improvement (Detractors). Understanding these strengths and weaknesses lets you focus your efforts and resources more effectively.
- Track Performance Over Time: Monitor changes in your NPS score over time to gauge the effectiveness of your initiatives and track improvements in customer satisfaction.
- Inform Strategic Decision-Making: Use your NPS score to inform strategic decisions across your organization. This could mean product development, customer service strategy, or marketing campaigns.
- Engage with Detractors: Reach out to Detractors to understand their concerns and address their issues promptly. Proactively resolving customer complaints can help turn Detractors into Promoters and mitigate potential negative word-of-mouth.
- Reward and Recognize Promoters: Show them appreciation by acknowledging their loyalty and advocacy. Consider implementing rewards programs or special offers to incentivize continued support and referrals.
- Benchmark Against Competitors: Compare your NPS score with industry benchmarks and competitors to gain perspective on your performance. Understanding where you stand relative to others can highlight areas for differentiation and improvement.
In summary, your NPS score is a powerful tool for driving customer-centric strategies, improving overall performance, and ultimately fostering long-term success and growth for your business.
To help you understand NPS and how it’s influenced by the customer experience, consider partnering with CX experts at CSP. We offer comprehensive solutions for designing, distributing, and analyzing surveys, streamlining the entire process, and saving valuable time and resources.
