Demystifying NPS — Net Promoter Score
We all understand the importance of measuring “satisfaction” to ensure customer retention and calculate the probability of whether or not a particular customer will defect (read withdraw support/loyalty).
In this time of cut-throat competition, one thing which all executives lack is “ample time”. Therefore, it is becoming a trend that companies do not receive adequate responses to the (long and sometimes ambiguous) customer satisfaction surveys that they periodically send to their customers. Even if they do elicit a response, the answers at times aren’t quantifiable.
So, do we have an alternative to measure customer satisfaction/loyalty? Fortunately, yes. The answer lies in the Net Promoter Score (NPS).
Origin of NPS
Net Promoter Score (NPS) is a metric that was first developed in 1993 by Frederick F. Reichheld. It was later adopted by Bain & Company Inc. and Satmetrix Systems, Inc. in the year 2003. After sending 20 distinct questionnaires to thousands of customers in six different industries, Reichheld’s research team found that a single question stood out as being the most correlated with the purchase and referral behavior of customers. This question became the basis of NPS and is widely adopted by companies to gather customer feedback.
In the winter of 2003, Reichheld published his findings in the Harvard Business Review, in an article titled — The One Number You Need to Grow, which became an instant hit.
NPS Calculation
This proven metric measures customer satisfaction/loyalty on a ten-point scale. For example — How likely is it that you would recommend (Company/Service/Product) to a friend or colleague? The customer is then prompted to give a score between 0 and 10, which is then used to calculate the Net Promoter Score.
Based on the response, the respondents are grouped as follows:
- Promoters (score 9–10): loyal and repeat customers.
- Passives (score 7–8): satisfied customers but vulnerable to a competitive offering.
- Detractors (score 0–6): unhappy customers who can tarnish your brand through negative word-of-mouth.
Net Promoter Score (NPS) is arrived at by subtracting the percentage of Detractors from the percentage of Promoters. NPS may range from a low of -100 (if every customer is a Detractor) to a high of 100 (if every customer is a Promoter).
Why is NPS important to your Business?
The NPS researchers found a strong positive correlation between NPS and the average three-year growth rate of a company. As Reichheld writes, “evangelistic customer loyalty is clearly one of the most important drivers of growth. While it doesn’t guarantee growth, in general, profitable growth can’t be achieved without it.”
