Net promoter score

What is Net Promoter Score?

The Net Promoter Score (NPS) is a customer loyalty metric used to gauge the willingness of customers to recommend a company’s products or services to others. It is a simple yet powerful indicator of customer satisfaction and the potential for organic business growth.

Developed by Fred Reichheld, NPS has become a widely adopted standard in various industries for its ease of implementation and actionable insights. It moves beyond traditional satisfaction surveys by focusing on a single, critical question that correlates strongly with business outcomes.

Understanding NPS requires categorizing customers into distinct groups based on their responses and then calculating a score that reflects the overall sentiment. This score can then be tracked over time to measure the impact of business strategies and customer service initiatives on loyalty.

Key Takeaways

• NPS measures customer loyalty by asking a single question about the likelihood of recommendation.
• Customers are categorized into Promoters (9-10), Passives (7-8), and Detractors (0-6).
• The NPS score is calculated by subtracting the percentage of Detractors from the percentage of Promoters.
• A higher NPS generally indicates greater customer loyalty and potential for growth.
• It is a versatile metric used across industries to gauge customer sentiment and track improvements.

Understanding Net Promoter Score

The Net Promoter Score is derived from a single survey question: “On a scale of 0 to 10, how likely are you to recommend [company/product/service] to a friend or colleague?” Based on their numerical rating, customers are segmented into three groups:

• Promoters: Customers who score 9 or 10 are enthusiastic advocates who are likely to make repeat purchases and refer others.
• Passives: Customers who score 7 or 8 are satisfied but unenthusiastic, and are vulnerable to competitive offerings.
• Detractors: Customers who score 0 to 6 are unhappy and may spread negative word-of-mouth.

The NPS score is calculated using the formula: NPS = % Promoters – % Detractors. This score can range from -100 to +100. A positive score indicates more Promoters than Detractors, suggesting healthy customer loyalty, while a negative score signifies a higher proportion of Detractors.

Formula

The Net Promoter Score is calculated as follows:

NPS = % Promoters – % Detractors

Where:

• % Promoters is the percentage of respondents who answered 9 or 10.
• % Detractors is the percentage of respondents who answered 0 to 6.
• Passives (respondents who answered 7 or 8) are not directly included in the score calculation but are important for understanding customer sentiment.

Real-World Example

Consider a software company that surveys its users. Out of 100 respondents:

50 customers rate their likelihood to recommend as 9 or 10 (Promoters).

30 customers rate their likelihood to recommend as 7 or 8 (Passives).

20 customers rate their likelihood to recommend as 0 to 6 (Detractors).

The percentage of Promoters is 50/100 = 50%.

The percentage of Detractors is 20/100 = 20%.

NPS = 50% – 20% = 30. This company has an NPS of 30.

Importance in Business or Economics

NPS is crucial for businesses as it directly correlates with revenue growth, customer retention, and brand advocacy. Loyal customers, identified as Promoters, tend to spend more, stay with the company longer, and provide valuable referrals, reducing customer acquisition costs. Conversely, Detractors can damage a brand’s reputation through negative word-of-mouth, potentially hindering growth.

By tracking NPS, businesses can identify areas of strength and weakness in their customer experience. Acting on feedback from Detractors can help turn dissatisfied customers into loyal ones, while understanding the needs of Passives can convert them into Promoters. This proactive approach to customer relationship management fosters sustainable business success.

Economically, a high NPS can signal a company’s competitive advantage and market leadership. It reflects strong product-market fit and effective customer service strategies, contributing to a company’s overall valuation and investment appeal. Businesses with consistently high NPS often experience more predictable revenue streams and lower volatility.

Types or Variations

While the standard NPS question focuses on recommending to a friend or colleague, variations exist to provide more specific insights:

Relationship NPS (R-NPS): Measured periodically to track the overall relationship strength between a company and its customers over time. This is a general measure of loyalty.

Transactional NPS (T-NPS): Assessed after a specific customer interaction, such as a purchase, support call, or service delivery. This helps identify issues related to particular touchpoints in the customer journey.

Product NPS: Used to gauge customer sentiment and likelihood to recommend a specific product or feature within a company’s offering.

Related Terms

• Customer Satisfaction (CSAT)
• Customer Effort Score (CES)
• Customer Lifetime Value (CLV)
• Brand Advocacy
• Customer Retention Rate

Sources and Further Reading

• Reichheld, F. F. (2006). The One Number You Need to Grow. Harvard Business Review. https://hbr.org/2006/12/the-one-number-you-need-to-grow
• Bain & Company. (n.d.). Net Promoter System. https://www.bain.com/consulting-services/customer-strategy-and-marketing/net-promoter-score/
• Qualtrics. (n.d.). Net Promoter Score (NPS): The Ultimate Guide. https://www.qualtrics.com/experience-management/customer/net-promoter-score/

Quick Reference

Definition: A metric measuring customer loyalty and likelihood to recommend.

Calculation: % Promoters – % Detractors.

Score Range: -100 to +100.

Categories: Promoters (9-10), Passives (7-8), Detractors (0-6).

Purpose: Gauge customer sentiment, predict growth, and identify areas for improvement.

Frequently Asked Questions (FAQs)

What is considered a good Net Promoter Score?

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Tumisang Bogwasi

Tumisang Bogwasi, Founder & CEO of Brimco. 2X Award-Winning Entrepreneur. It all started with a popsicle stand.

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