Net Promoter Score

by Grant Gipe in

What is the Net Promoter Score

The Net Promoter Score is a customer loyalty metric expressed as index ranging from -100 to 100 that measures the willingness of customers to recommend a company's products or services to others.

How To Calculate the NPS Score

By asking your customers one simple question — “How likely are you to recommend this (company/product/brand) tour to someone else?” — you can track these groups and get a clear measure of your performance. Responses are on a 0-to-10 point rating scale and are categorized as follows:

  • Promoters (score 9-10) are loyal and more likely to refer your company/product/brand.
  • Passives (score 7-8) are satisfied but unenthusiastic who are vulnerable to competitive offerings.
  • Detractors (score 0-6) are unhappy customers who can damage your reputation and impede additional tours through negative word-of-mouth.
NPS

The Net Promoter Score is calculated as the difference between the percentage of Promoters and Detractors. The NPS is not expressed as a percentage but as an absolute number lying between -100 and +100.

If you have for example 25% Promoters, 55% Passives and 20% Detractors, the NPS will be +5. A positive NPS (>0) is generally considered as good.

Don’t make the common mistake of placing a percent sign (%) behind your NPS score, it is not a percent.

The NPS is a non-traditional customer satisfaction metric and measuring it exclusively will not help you identify strategic and tactical changes. Yon need to also:

  • Ask users if they can be contacted in the future.
  • Automatically sort these users into lists (panels) of “detractors”, “passives” and “promoters”.
  • Repeatedly survey these groups, each with surveys tailored to their group.
  • Determine why respondents feel the way they do.
  • Track changes over time.
  • Correct problems and capitalize on successes.
  • Build meaningful relationships with customers in all 3 groups and improve perceptions.

Benefits of using the NPS Model

  • Higher Retention Rate: Detractors generally defect at higher rates than Promoters, which means that they have shorter and less profitable relationships with your company. Rescue those Detractors—turn them into Promoters—and experience higher margins.

  • Higher Margins: Promoters are usually less price-sensitive than other customers because they believe they’re getting good value overall from your company. The opposite is true for Detractors, who are more price-sensitive.
  • Higher Annual Spend: Promoters buy more, more often, than Detractors do. They tend to consolidate more category purchases with their favorite supplier. Promoters’ interest in new product offerings and brand extensions also exceeds that of Detractors or Passives.
  • Greater Cost Efficiencies: Detractors complain more frequently and consume more service resources. In contrast, Promoters reduce customer acquisition costs by staying longer and helping to generate referrals.
  • Greater Word Of Mouth: What proportion of new customers selected your firm because of reputation or referral? The lifetime value of those new customers, including any savings in sales or marketing expense, comes from Promoters. If you’re using the Net Promoter model, you’ll attribute 80 to 90% of referrals to Promoters. On the other hand, Detractors are responsible for 80 to 90% of negative word of mouth, so you can attribute the cost of this drag on growth to them.