Net Promoter Score
NPS (Net Promoter Score) is a widely used metric to measure customer loyalty and satisfaction. It gauges customers’ willingness to recommend a product, service, or brand to others.
How NPS works:
1. Customers are asked one simple question: “On a scale of 0-10, how likely are you to recommend our [product/service/brand] to a friend or colleague?”
2. Respondents are categorized into three groups:
– Promoters (9-10): Loyal customers who will likely continue to purchase and recommend.
– Passives (7-8): Satisfied but neutral customers who may not actively promote.
– Detractors (0-6): Unhappy customers who may potentially harm the brand through negative word-of-mouth.
3. Calculate NPS by subtracting the percentage of Detractors from the percentage of Promoters.
NPS Formula:
NPS = % Promoters – % Detractors
Example:
• Promoters (9-10): 60%
• Passives (7-8): 20%
• Detractors (0-6): 20%
NPS = 60% – 20% = 40
Interpretation:
• Positive NPS (above 0): More Promoters than Detractors, indicating a loyal customer base.
• Negative NPS (below 0): More Detractors than Promoters, indicating potential loyalty issues.
• NPS ranges:
– Excellent: 50+
– Good: 20-49
– Average: 0-19
– Poor: -19 to -50
– Critical: -50 or lower
Benefits of NPS:
1. Simple and easy to understand
2. Identifies loyal customers and areas for improvement
3. Tracks changes in customer satisfaction over time
4. Encourages customer-centric decision-making
Limitations:
1. Oversimplifies complex customer relationships
2. May not account for varying customer expectations
3. Requires regular surveys to maintain accuracy
Best practices:
1. Use NPS in conjunction with other metrics (e.g., CSAT, CES)
2. Segment NPS by customer demographics or behaviors
3. Set targets and track NPS over time
4. Act on feedback to improve customer experience
By leveraging NPS, businesses can better understand customer loyalty, identify areas for improvement, and drive strategic decisions to enhance customer satisfaction and retention.