Net Promoter Score

History of NPS

Fred Reichheld, Bain & Company, and Satmetrix Systems developed the Net Promoter Score (NPS) in 2003. Reichheld introduced the concept in his Harvard Business Review article, “The One Number You Need to Grow.” aiming to create a simple metric to predict customer loyalty and business growth.

What is Net Promoter Score?

Net Promoter Score (NPS) is a widely used customer loyalty metric that measures the likelihood of recommending a company, product, or service to others. It’s based on a single question: “On a scale of 0 to 10, how likely are you to recommend [company/product/service] to a friend or colleague?” Then, respondents are categorized into three groups: Promoters, Passives, and Detractors.

• Promoters, respond with 9 or 10 and are loyal enthusiasts who will continue purchasing and recommending.
• Passives, respond with 7 or 8 and are satisfied but unenthusiastic customers who can switch to competition.
• Detractors, respond with score between 0 and 6 and are unhappy customers who can harm a brand through negative word-of-mouth.

How is net promoter score calculated?

The NPS score is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

$$\%~Promotors = \frac{Respondents~giving~a~score~of~9~or~10} {Total~Responses} * 100$$ $$\%~Detractors = \frac{Respondents~giving~a~score~between~0~and~6} {Total~Responses} *100$$ $$NPS = \%Promoters - \%Detractors$$

The score can range from -100 (if every customer is a Detractor) to +100 (if every customer is a Promoter). A score above 0 is considered good, above 50 is excellent, and above 70 is exceptional.

Is net promoter score a percentage?

No, Net Promoter Score (NPS) is not a percentage. It is a numerical score that ranges from -100 to +100. NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters. The result is an Integer, not a percentage.

For example, if a company has 60% Promoters, 20% Passives, and 20% Detractors, the NPS would be calculated as follows:

NPS = % Promoters - % Detractors
NPS = 60% - 20%
NPS = 40

Here, the NPS is 40, not 40%.

So we see that while the inputs to the NPS calculation are percentages, the final score is presented as a whole number.

Can Net Promoter Score be negative?

Yes, a Net Promoter Score (NPS) can be negative. As the NPS is calculated by subtracting the percentage of Detractors (customers who scored 0-6 on the likelihood to recommend question) from the percentage of Promoters (customers who scored 9-10). The resulting score can range from -100 to +100.

A negative NPS indicates that a company has more Detractors than Promoters. In other words, there are more customers who are unhappy and likely to spread negative word-of-mouth about the company than there are loyal, enthusiastic customers who would recommend the company to others.

For example, if a company has 20% Promoters, 30% Passives, and 50% Detractors, the NPS would be:

NPS = % Promoters - % Detractors
NPS = 20% - 50%
NPS = -30

A negative NPS is a clear signal that a company needs to take action to improve its customer experience, address the concerns of Detractors, and work to convert more customers into Promoters. This may involve making changes to products, services, customer support, or other aspects of the business that impact customer satisfaction.

It’s important to note that while a negative NPS is certainly a cause for concern, it also provides an opportunity for companies to identify and address issues, ultimately leading to improved customer loyalty and business success in the long run.

What is Net Promoter Score used for?

Net Promoter Score (NPS) is used as a metric to gauge customer loyalty, satisfaction, and enthusiasm for a company’s products or services. It is widely adopted by businesses to:

1. Measure customer loyalty: NPS helps companies understand how likely their customers are to recommend them to others, which is a strong indicator of customer loyalty and satisfaction.

2. Benchmark against competitors: Companies can compare their NPS to industry benchmarks and competitors to understand how they stack up in terms of customer loyalty. However, some critics argue that the differences in survey methodologies and customer segments can make benchmarking less reliable.

3. Identify areas for improvement: By analyzing NPS data and customer feedback, companies can identify areas where they need to improve their products, services, or customer experience.

4. Align the organization around customer-centricity: NPS can be used as a key performance indicator (KPI) to align the entire organization around the goal of improving customer satisfaction and loyalty.

5. Track progress over time: By measuring NPS regularly, companies can track their progress in improving customer loyalty and identify trends or changes in customer sentiment.

6. Segment customers: NPS data can be used to segment customers into Promoters, Passives, and Detractors, allowing companies to tailor their marketing, sales, and customer service strategies to each group.

7. Reduce churn: By identifying and addressing the concerns of Detractors, companies can reduce customer churn and improve customer retention.

Overall, NPS is used as a simple yet powerful metric to help companies understand, track, and improve customer loyalty and satisfaction, which are critical drivers of long-term business success.