In discussions of how likely it is that a business will grow, the Net Promoter Score (NPS) will come up again and again. This metric, which was first published in the Harvard Business Review in 2003, is said to be the best way to understand how loyal a business's customers are.
But what exactly is it? And does it really work?
On a scale of 0 to 10, with 10 being the highest, how likely is it that you would recommend [company] to a friend?
You've likely seen this question dozens of times. It often pops up after you order a product online or use a company's customer service department. It's simple, straightforward and doesn't take that long to answer. It measures what is known as the Net Promoter Score.
As a tool, NPS was first published by Frederick Reichheld. Working with Bain & Company and Satmetrix Systems Inc., his goal was to create a simple, efficient way to measure customer loyalty.
Since it first appeared in the Harvard Business Review, NPS has been adopted by large companies including Apple, Comcast and Intuit. But it can be used by any size of business, from a one-person shop to an international corporation.
How to measure your NPS
The 0-10 scale of the NPS survey is broken down into three sections.
Those who respond with a score of nine or 10 are called promoters. These are your most loyal customers, the ones who are willing to recommend your business to friends and co-workers. They are also considered more likely to engage in other high-value behaviors, such as making repeated purchases, choosing your company over a competitor, and remaining loyal customers for a longer time.
Anyone who selects a score of seven or eight is known as a passive; they may engage in a mix of high-value and low-value behaviors or do nothing at all.
Those who fall in the 0-6 range are known as detractors. They are less likely to exhibit these high-value behaviors. They are also unlikely to refer your company to anyone and may even recommend against it.
Your actual NPS is calculated by subtracting the percentage of customers who are detractors from the percentage of customers who are promoters. Passives count toward your overall number of customers, which decreases the percentage of customers who are either detractors or promoters and pushes net scores toward zero.
Your NPS can be as low as -100 (everyone who responds is a detractor) and as high as +100 (everyone who responds is a promoter). A score above zero is considered a good result, and anything over 50 is considered excellent.
What does NPS do for your business?
According to Reichheld and the Net Promoter System, the NPS is an indicator of a company's growth potential. A positive NPS indicates to investors and shareholders that you have many loyal customers, which is a powerful way to demonstrate that your company is a worthwhile risk. It can also benefit your employees: The Net Promoter Network encourages its use as an easy-to-understand metric that can motivate your entire workforce.
When it comes to interacting with customers, the NPS survey also provides the opportunity to ask an important follow-up question: Why?
Most NPS surveys give respondents the opportunity to answer the question "why did you select the score you chose?" Answers to this question give you two things:
- Insight into your customers' experiences and reactions
- An opportunity to follow up with customers and directly address their feedback
This gives you the chance to learn not only what customers do and do not like about your business, but also to change their perceptions and turn detractors into promoters.
Does NPS actually work?
So is NPS really the best way to measure customer loyalty and predict a business's growth?
"The best" is up for debate. Some research has found that it is no more successful than other metrics of potential growth. In his article "The True Test of Loyalty," customer experience data scientist Bob Hayes argues that the "likely to recommend" question does not measure anything substantially different from other customer loyalty questions.
But even if it's not the ultimate measure of loyalty or growth potential, NPS is meaningful. In its report "The Economics of Net Promoter," the Temkin Group found that good NPS scores do relate to high customer loyalty. Promoters are five times as likely as detractors to purchase again, and more than seven times as likely to forgive a company for an error or poor experience. They also promote the company at an average of 3.5 times per person.
Another benefit of this metric is how easy it is to answer the promoter survey. Unlike traditional customer satisfaction surveys, the NPS requires only one question with an optional follow-up space to elaborate. It takes only a few seconds to complete, which increases the likelihood that your customers will actually respond.
Like any tool, though, NPS has its limitations. Customers are more likely to give a poor score after a poor experience – say, a frustrating call with the billing department – even if they have positive feelings about a company overall. The survey also asks respondents to rate the company itself, so it should not be used to rank or evaluate individual employees; however, not every customer will respond with this guideline in mind.
Ultimately, the effectiveness of your NPS depends on what you do with it. How you respond to your customers' feedback has far more impact on your company's growth than the number a single metric can give you.