Net Promoter Score, or NPS as most commonly referred to, is a term often used in the customer satisfaction industry. Read below to find out what it is and how you can use it for your business:
1.What is Net Promoter Score?
Net Promoter Score (NPS) was developed in the early 90s by F. Reichheld, however, its main adoption started 10 years later. It is a metric used to predict customer purchase and referral behaviour. The question used to determine NPS is:
“On a scale of zero to 10, with 10 being highest, what’s the likelihood that you would recommend us (our company) to a friend or colleague?”
This question is almost always included in all surveys send by companies to their customers to gather feedback. The reason for this is that this question is different from others which measure customer satisfaction. In fact, NPS measures customers’ loyalty in general towards your company and brand. This gives valuable information about the potential for sustainable growth through customer retention and word-of-mouth marketing.
2. Why is Net Promoter Score important?
Responses to NPS fall in 3 categories, displayed on the graph below:
- Detractors are customers who gave a score of 0 to 6, indicating dissatisfaction with your services or products. Therefore, they are more likely to discourage their friends or colleagues from using your company.
- Passives are customers who gave a score of 7 or 8, indicating that they are not likely to actively recommend your company to others.
- Promoters are customers who gave a score of 9 or 10, and they are likely to actively recommend your company to others.
The actual score is then calculated by taking the percentage of responders who are promoters and then subtracting the percentage of customers who are detractors. Passive responders are not used in this final calculation. This will generate a score ranging from -100 to 100, which is your Net Promoter Score.
This metric allows companies to compare the number of their detractors, who are giving low scores to the company and are highly likely to churn, to the number of their promoters, who are actively recommending their company or product and are likely to continue their relationship with the company.
Research on NPS has found out that there is a strong correlation between NPS and the 3-year growth of the company. This means that the more loyal customers (i.e. “promoters”) a company has, the more likely it is to succeed.
3. How to use NPS?
Having a positive NPS means that you have more customers organically recommending your company than people discouraging others from buying from you. Thus, you can identify how much of your profits comes from healthy, sustainable relationships, and how much is at a risk of churning. Furthermore, you should always follow an NPS question with open-ended questions (e.g. “Why?”, or “What would it take our score by just one point?”). This will give you more insight into why your customers answered the way they did. This way, you can learn how and what to improve.
If you want to go the extra mile with your customer reviews, read our article “How to Increase Your Business Through Customer Feedback.”