Wouldn’t it be great to have just one simple measure of business success? What determines success in most businesses is whether customers like and buy the products and services offered. This is where the Net Promoter Score (NPS) comes in. Many argue, that it is THE most important indicator of business success.
That’s a big claim and warrants a closer look at what the NPS is, why it’s a good measure, how to measure it, and how it can be improved to really become a key indicator of business success
What is it?
The Net Promoter Score (NPS) is based on the fundamental premise that customers can be divided into three groups:
Promoters
Passives
Detractors.
By asking one simple question — How likely is it that you would recommend [Company X] to a friend or colleague? — an organization can track these groups and get a clear measure of their performance through its customers' eyes.
Why is it a good metric?
Empirical research has shown that there is a striking correlation between the customer grouping and actual behaviour – repeat purchase and referral patters - over time.
Further research mapped the NPS rating to the growth rates of an organization with high NPS scores and their competitors. The results showed that in most industries, this one simple statistic explained much of the variation in relative growth rates; that is, companies with a better ratio of Promoters to Detractors tend to grow more rapidly than competitors.
NPS is a straightforward metric that holds companies and employees accountable for how they treat customers. When combined with appropriate diagnostics and follow-up actions, it drives improvements in customer loyalty and enables profitable growth.
How do I measure it?
NPS is collected using a survey (mail based, internet or phone) asking respondents to score the question “How likely is it that you would recommend [Company X] to a friend or colleague?” using a 0 to 10 scale.Promoters (score 9–10) are loyal enthusiasts who will keep buying and refer others, fuelling growth.
Passives (score 7–8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
Detractors (score 0–6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
You can then calculate your NPS by taking the percentage of Promoters and subtracting the percentage of Detractors:
Net Promoter Score = % of promoters - % of detractors
How can it be improved to become a key business metric?
What is great about using the NPS is that you get a simple numeric score that you can benchmark with competitors, your industry, etc. However, in order to become truly useful, we need a little more:
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