What Is Net Promoter Score (NPS) and Why Does It Matter?
Customer loyalty and satisfaction are critical for business success, but how do you quantify these intangible qualities? This is where Net Promoter Score (NPS) comes in.
NPS helps businesses measure customer loyalty by asking a simple yet powerful question: “How likely are you to recommend our product or service?”
Developed in 2003 by Bain & Company, NPS has since become the gold standard for evaluating customer satisfaction across industries. With its ability to identify promoters, detractors, and passive customers, NPS gives businesses actionable insights to improve customer experiences, enhance brand loyalty, and ultimately drive growth.
In this post, we’ll explore how NPS is calculated, how it’s measured, and why it’s an essential metric for your business.
How Is Net Promoter Score (NPS) Calculated?
Calculating your Net Promoter Score is straightforward but requires understanding the behavior of your customers. The formula is:
NPS = % of Promoters – % of Detractors
Step-by-Step Breakdown:
- Gather Responses: Ask your customers to rate their likelihood of recommending your company, product, or service on a scale of 0 to 10.
- Categorize Responses: Divide responses into three groups:
- Promoters (9–10): These are highly satisfied customers who actively promote your brand.
- Passives (7–8): These customers are moderately satisfied but not loyal enough to recommend you to others.
- Detractors (0–6): Dissatisfied customers who are likely to criticize your business.
- Calculate Percentages: Find the percentage of respondents in each group.
- Apply the Formula: Subtract the percentage of Detractors from the percentage of Promoters.
For example, if 50% of your respondents are Promoters and 20% are Detractors, your NPS is:
NPS = 50% – 20% = +30
Real-World Example:
Let’s say you surveyed 1,000 customers, and 600 rated you as Promoters, 300 as Passives, and 100 as Detractors. The percentages would be:
- Promoters: 60%
- Detractors: 10%
Your NPS would then be:
NPS = 60% – 10% = +50
An NPS of +50 is considered excellent, as it indicates a strong majority of satisfied, loyal customers.
How Is Net Promoter Score (NPS) Measured?
Measuring Net Promoter Score is as simple as asking one critical question:
“On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?”
Categorizing Customer Responses
Once customers provide their ratings, their responses are sorted into three distinct categories:
- Promoters (9–10): Loyal and enthusiastic supporters who help grow your business through positive word-of-mouth.
- Passives (7–8): Neutral customers who are satisfied but indifferent, offering little value in terms of promotion.
- Detractors (0–6): Dissatisfied customers who are at risk of spreading negative feedback about your brand.
Tools to Measure NPS
There are many tools available to measure NPS effectively, including:
- Survey Platforms: Tools like SurveyMonkey, Qualtrics, and Typeform can help collect and analyze NPS data.
- Customer Feedback Software: Platforms like Delighted and Medallia specialize in NPS surveys and provide detailed insights.
Practical Example:
Consider a SaaS company offering a project management tool. After rolling out a new feature, they send an NPS survey to users. The results show:
- 40% Promoters (rated 9 or 10)
- 35% Passives (rated 7 or 8)
- 25% Detractors (rated 0 to 6)
Their NPS is:
NPS = 40% – 25% = +15
A score of +15 suggests room for improvement, particularly in addressing the concerns of Detractors and converting Passives into Promoters.
What Is Net Promoter Score (NPS) Used For?
The Net Promoter Score is a versatile tool that businesses use for multiple purposes, including:
1. Gauging Customer Satisfaction and Loyalty
NPS provides a quick snapshot of how satisfied your customers are and whether they’re likely to remain loyal over time.
2. Identifying Opportunities for Improvement
NPS surveys often include follow-up questions, such as “What’s the primary reason for your score?” These responses can help you pinpoint specific areas of dissatisfaction.
3. Turning At-Risk Customers into Advocates
By addressing the pain points of Detractors, businesses can transform dissatisfied customers into Promoters, boosting overall loyalty.
4. Benchmarking Against Competitors
NPS allows you to compare your performance against industry standards and competitors, providing valuable insights into how you stack up in the market.
Real-World Application:
A retail business with an NPS of +70 regularly surveys its customers and uses feedback to tweak its product offerings. By implementing suggestions, the company continues to see high levels of customer retention and new referrals from Promoters.
Who Developed Net Promoter Score (NPS)?
The Net Promoter Score was introduced in 2003 by Fred Reichheld, a partner at Bain & Company. Along with Satmetrix, Bain designed NPS as a simple, universal metric to gauge customer loyalty.
Today, NPS is used by millions of businesses globally, from startups to Fortune 500 companies. Its popularity stems from its simplicity, clarity, and ability to provide actionable insights.
For example, major brands like Apple, Amazon, and Airbnb rely on NPS to measure and improve customer satisfaction. This metric has become a cornerstone of their customer experience strategies, contributing to their industry-leading reputations.
Why Is a High Net Promoter Score (NPS) Important?
A high Net Promoter Score is a strong indicator of a healthy, successful business. Companies with higher NPS scores often enjoy:
- Increased Customer Retention: Satisfied customers are more likely to stay loyal and continue using your services.
- Positive Word-of-Mouth: Promoters actively recommend your business, helping you acquire new customers without additional marketing costs.
- Higher Revenue Growth: Studies show that companies with high NPS scores grow at twice the rate of their competitors.
Example:
Take Tesla, for instance. The company’s exceptional NPS is largely driven by its cult-like following of Promoters who passionately advocate for the brand, contributing to its massive success in the electric vehicle market.
Your Turn… How Will You Leverage Net Promoter Score?
The Net Promoter Score isn’t just a number—it’s a strategic tool for driving customer loyalty, satisfaction, and business growth. By measuring NPS, addressing Detractors’ concerns, and amplifying the voices of Promoters, you can create a customer-centric business model that sets you apart from the competition.
Ready to put NPS to work for your business? Start by surveying your customers, analyzing their feedback, and making the changes needed to turn passive and dissatisfied customers into loyal brand advocates.
Curious about how you can integrate NPS into your SaaS marketing strategy?
Let’s talk! Schedule a free consultation with us to explore actionable ways to elevate your customer experience. Don’t leave loyalty to chance—make it measurable.
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Check out our success story on how we helped a SaaS business significantly increase website traffic by implementing a strategic growth marketing plan. Read the case study here.
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