What is NPS?

Net Promoter Score (NPS) is a metric used to assess long-term customer happiness, or customer loyalty. The metric examines the number of people who would recommend a company’s products or services to their family or friends.

Fred Reichheld, who is best known for his work in loyalty marketing, founded the NPS concept in 2003. Reichheld sees NPS as a key performance indicator for growth, arguing that companies with high NPS scores (in other words, a large following of loyal customers) will experience long-term, sustainable growth. His research found that companies achieving long-term profitable growth have NPS scores that are twice as high as the average company.

How Net Promoter Scores Work

The NPS Question

After helping a customer, all an agent needs to do is ask what Reichheld calls “The Ultimate Question”:

“On a scale of 0-10, how likely is it that you would recommend us to a friend or colleague?”

The respondents are asked to answer the above question by using a 0 to 10 scale, where 5 is neutral and 10 is excellent. Companies wishing to truly understand how customers perceive their products and/or services should not stop here though.

Customer service reps should also ask why respondents gave the score that they did. That way they can take action and work to make any dissatisfied customers happy.

In order to determine what your NPS is, customers must be broken into 3 categories, outlined below.

1. Promoters: Respondents that gave a 9-10 rating

Promoters are brand advocates who spread their love for a company’s products or services to others via word of mouth. They relay their positive experiences to others and encourage them to join them as a loyal company follower.

2. Passives: Respondents that gave a 7-8 rating

 Passives are satisfied but uncommitted to the company. They can be easily swayed to try a similar option offered by the competition. Passives do not factor into the NPS since they neither promote nor take away from the brand.

It’s important to note that through nurturing and improved experiences in the future, Passives can become Promoters. This is why follow-up questions are good to ask — they allow agents to identify specific areas needing attention.

3. Detractors: Respondents that gave a 0-6 rating

Detractors are dissatisfied customers who interacted negatively with a company’s products or services. They are more likely to switch to a competitor the next time they need similar services, or worse – they might spread bad news about the company to others.

Calculating NPS

Net Promoter Scores are easy to calculate:

Subtract the percentage of Detractors from the percentage of Promoters.

Hopefully, you have a better ratio of promoters to detractors. If not, then you know you need to take action and implement new strategies for improving your services or products. Even if you have more Promoters than Detractors, you should always be striving for zero Detractors, or zero unsatisfactory experiences.

Top NPS Benefits

Using the Net Promoter Score metric is great for gauging how efficiently your company is growing. By monitoring Detractors, and improving the experience for Passives, you can enhance your NPS score.

Now that you understand the basics of how the Net Promoter Score metric works, let’s review some of the other more detailed benefits that NPS offers:

1. Predict Customer Loyalty

NPS focuses on measuring long-term happiness, or customer loyalty. Understanding how loyal your customers are gives companies an understanding of how they are servicing their customers and what changes they might need to make.

2. Measure NPS Across Multiple Channels

The NPS question is a simple method for collecting information across different channels, contact moments and experiences. This is helpful for companies that need to assess and compare different service channels, so that they can better understand customer preferences.

3. Segment & Track Customer Satisfaction

Overall customer satisfaction is good to know, but a company might be doing great in one area and not so great in others. The NPS metric can be used for the whole company as well as company segments, such as different products, stores or customer service teams. This helps companies pinpoint exactly what areas need improvement.

4. Understand Geographic Differences

NPS also helps companies understand how customer satisfaction is correlated with other factors, such as geographic location. By measuring NPS for the same service in different areas, companies will gain a better understanding of what different segments of their customers are looking for.

5. Reorganize & Prioritize Internal Operations

 The NPS metric offers insight needed to shift resources and drive internal priorities. For example, if the NPS score is lower than desired, companies can take action and address the areas customers are unhappy with.

6. Ease & Simplicity

The NPS metric is highly adaptable, as well as simple and easy to use. Since the survey is so short, customers are more likely to participate. By using numbers for the rating, the scores are also quick and easy to calculate. The survey can be conducted via phone, email or Web depending on which method generates the highest number of responses.

Why Net Promoter Scores Matter

Companies that track NPS gain a better understanding of what their core strengths and competencies are. They also gain insight into what areas need improvement, and what they need to do to make more customers happy.

However, like other metrics, it’s important to note that a high NPS score alone does not guarantee success. NPS merely measures the quality of a company’s relationships with its current customers. While this is important, it’s not the only factor playing into a company’s growth levels. Companies must not only have a strong following of loyal customers, but also make smart decisions around other growth factors playing into their industry.

Now that you know what a Net Promoter Score is and understand the benefits of this metric, you can learn tips for customizing it and implementing it effectively across your organization. Learn how to create KPIs that measure customer experience across business units.