NPS stands for Net Promoter Score.
It measures the likelihood, on a 1-10 scale, that someone will recommend your company to someone else.
It’s a quick, easy, and inexpensive way to track how well your initiatives delight your customers.
The theory behind NPS is this:
- Customer satisfaction and loyalty correlate strongly with sales.
- A stated propensity to refer your brand a friend or colleague correlates strongly with customer satisfaction and loyalty.
Why are recommendations important?
NPS tells businesses how they’re doing in two very important arenas: customer promotion and customer loyalty.
Recommendations lead to sales. Word of mouth is the most effective form of marketing in the estimation of 64% of marketing executives. Recommendations from friends and family are more trustworthy than all other forms of advertising to 92% of consumers, according to Nielsen.
It’s also a customer loyalty metric. Customer loyalty is essential to profitability because it’s much cheaper to get a repeat sale than a new customer.
Once you get a baseline NPS, you can measure it against variables to determine their impact on NPS. In this way, you can learn how to grow your NPS, and your sales too.
Why is NPS important now?
The Net Promoter Score was invented in 2003 by Fred Reichheld and introduced to the world via “One Number You Need to Grow” in Harvard Business Review. Reichheld wanted to solve the problem of unhelpful customer satisfaction surveys.
They tend to be long and complicated, yielding low response rates and ambiguous implications that are difficult for operating managers to act on. Furthermore, they are rarely challenged or audited because most senior executives, board members, and investors don’t take them very seriously. That’s because their results don’t correlate tightly with profits or growth.
NPS promoters claim it correlates tightly with profits and growth.
Though others say customer responses aren’t closely aligned with actual customer behavior. “Intention to do anything,” the argument goes, “let alone to recommend a company one does business with, is useless.”
Either way, measuring NPS is valuable because it gives you a baseline metric to gauge at a glance if people are feeling better or worse about you over time. And it also helps you identify the people who at least claim they will champion your brand.
NPS is the fastest, easiest way to assess consumer sentiment about your brand. And if it actually does correlate with likelihood of recommending, it may be more important than ever.
In 2003, a realistic win was a customer telling two friends about your brand. In 2015 a realistic win is a customer using their blog, Twitter, Facebook, Periscope, Meerkat, Snapchat, Instagram, Vine, YikYak, WhatsApp, etc. to tell two million friends about your brand.
Three quarters of people talk about brands on social media.
As customers have become more empowered than ever to spread their opinions, good and bad, it’s never been more important to ensure you’re giving them something positive to say.
How do you measure NPS?
It starts with a question: “How likely are you to recommend us to a friend?”
The first people you want to ask are your current customers. One good time to ask them is after they purchase or after they contact customer service.
To do this, you need a Net Promoter Score questionnaire.
If you’ve never asked your customers this question, SurveyMonkey has some templates to help get you started.
There’s also a lot of survey software to help automate the process.
The most common scale is 0-10.
While a 0-10 scale is popular, the 7-point scale (1-7) is becoming more common. People are less likely to pick randomly on this scale compared to an 11-point scale in some studies. Researchers theorize that fewer options are less overwhelming, reducing random answers. In addition, the unfamiliarity of a seven-point scale may throw people off guard, causing them to think before answering, which may make their answers more accurate.
Your Net Promoter Score is your percentage of promoters minus your percentage of detractors.
NPS ranges from −100 (meaning everyone is a detractor) to +100 (meaning everyone is a promoter).
Most companies consider a decent Net Promoter Score to be >0%. Any positive NPS good. An NPS of +50 is excellent.
Once you have your responses, add up your “promoters,” “passives,” and “detractors.”
If you’re using a 0-10 scale, people who select
- 9 or 10 are promoters
- 7-8 are passives
- 0-6 are detractors
If you’re using a 7 point scale, people who select
- 7 are promoters
- 5-6 are passives
- 1-4 are detractors
Next you need to know what percentage of your customers each group comprises.
Some survey software will automate some or all of this process for you. But here’s how to calculate your NPS. manually:
- Export responses from your questionnaire/survey into a spreadsheet.
- Divide respondents into detractors, passives, and promoters.
- Add up the total responses from each.
- Divide the group total by the total survey responses to get the percentage total of each group. Or use a percentage calculator to make it easier.
- Subtract the percentage total of detractors from the percentage total of promoters.
This is your NPS!
You can also use this equation:
(promoters – detractors) / (respondents) x 100
100 responses to your survey
10 people answered 0, 1, 2, 3, 4, 5, or 6
100/10 = 10% are detractors
20 answered 7 or 8
100/20 = 20% are passives
70 answered 9 or 10
100/70 = 70% are promoters
Subtract detractors from promoters. 70% – 10% = 60%
A Net Promoter Score is always shown as an integer and not a percentage.
So your NPS is 60. Baller!
NPS, or Net Promoter Score, isn’t a perfect measurement. But it’s a quick-and-dirty method that correlates closer to sales and growth than traditional customer satisfaction surveys.
Do you measure NPS? Why or why not? Let us know in the comments!
Images by Abby Kahler
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