In this blog, I explain how Net Promoter Score (NPS®) works. In my next blog I will outline some of the criticisms that are levelled at NPS.
NPS is a simple, single, metric that many companies use to measure customer perceptions of their business’s performance. It based on the assumption that satisfied customers will spread good news about their experiences whilst dissatisfied customers spread bad news.
NPS uses just one question — How likely is it that you would recommend [your company or brand] to a friend or colleague? — to get an insight into a company’s performance through its customers’ eyes. Customers respond to the question on a 0-to-10 point rating scale and are categorized as follows:
- Promoters (score 9-10) are loyal customers who will keep buying and refer others, fuelling company growth.
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (score 0-6) are unhappy customers who are at risk of switching, can damage a brand’s reputation and impede growth through negative word-of-mouth.
To calculate NPS, you simply take the percentage of customers who are Promoters and subtract the percentage who are Detractors. So, if 40% of your customers score you at 9 or 10, and 20% score you at between 0 and 6, your NPS is 20. Simple maths shows you that the maximum NPS is 100, and you’d only achieve this if 100% of your customers rated you 9 or 10.
NPS has its origins in the work of Fred Reichheld and his colleagues at consultancy Bain & Co. Reichheld has published a number of books including “The Loyalty Effect”, “The Ultimate Question” and “The Ultimate Question 2.0” in which he develops and presents his views on the importance of customer satisfaction and word-of-mouth. The logic behind NPS is that satisfied customers spread positive word-of-mouth, influencing the behaviours of others and fuelling business growth; therefore it makes sense to focus business resources on building positive WOM, and reducing negative WOM.