The Net Promoter Score (NPS) is a simple but powerful tool to measure client satisfaction with one single question, an indication of the growth potential of your company or product. Read further for an overview on the use, application and pitfalls of NPS.
What is the Net Promoter Score?
The Net Promoter Score is a customer loyalty metric developed in 2003 by management consultant Fred Reichheld of Bain & Company in collaboration with the company Satmetrix. The objective was to determine a clear and easily interpretable customer satisfaction score which can be compared over time or between different industries.
The NPS assesses to what extent a respondent would recommend a certain company, product or service to his friends, relatives or colleagues. The idea is simple: if you like using a certain product or doing business with a particular company, you like to share this experience with others.
Specifically, the respondent is asked the following question:
How likely are you to recommend company/brand/product X
to a friend/colleague/relative?
This can be answered on an 11-point rating scale, ranging from 0 (not at all likely) to 10 (extremely likely).
Depending on the score that is given to the Net Promoter question, three categories of people can be distinguished:
- Promoters = respondents giving a 9 or 10 score
- Passives = respondents giving a 7 or 8 score
- Detractors = respondents giving a 0 to 6 score
The Net Promoter Score is calculated as the difference between the percentage of Promoters and Detractors. The NPS is not expressed as a percentage but as an absolute number lying between -100 and +100.
If you have for example 25% Promoters, 55% Passives and 20% Detractors, the NPS will be +5. A positive NPS (>0) is generally considered as good.
Don’t make the common mistake of placing a percent sign (%) behind your NPS score, it is not a percent.
NPS is used nowadays by many large companies as a customer feedback tool. It gives your organization an unambiguous number that is easy to understand for all employees and useful as input for managers to steer the company . According to many people the NPS also gives a good indication of growth potential and customer loyalty for a company or product.
You can track the evolution of the NPS over time, or compare it with a predetermined target. You can also benchmark different areas or products, or check where your company positions itself versus the industry average if this is available.
To give an indication: according to Reichheld the average American company scores less than +10 on the NPS, while the highest performing organizations are situated between +50 and +80. These values may however vary considerably from sector to sector and from culture to culture.
To understand the motives of Promoters and Detractors it is recommended to accompany the NPS question by one or more open questions that probe the underlying reasons behind the given score. This allows you to make the appropriate adjustments to increase the future NPS, either by boosting the percentage of Promoters, either by reducing the proportion of Passives and Detractors (or better yet, a combination of both).
NPS in the CheckMarket tool
To respond to the increasing popularity of the Net Promoter Score CheckMarket has decided to add the NPS question as standard question in the tool. If you want to use the NPS in your survey, the only thing you have to do is to select this question type. It is still possible to modify the formulation of the question or the naming of the endpoint value labels.
Once the responses start rolling in, you will see a bar chart in the reporting tool, showing the percentage of Detractors (red), Passives (orange) and Promoters (green). Under that is the detailed response distribution for the 11 possible scores.
Based on these percentages, the actual NPS is calculated. Your NPS is represented on an easy-to-read gauge (showing positive NPS in green, negative in red). Enabling you to see at a glance how well your product or business is performing.
Some critical remarks
From a scientific perspective and in certain market research circles there is some skepticism about the NPS. Opponents of the NPS concept argue that there is insufficient scientific base for the outcome and that the model is too simple. They claim customer loyalty and satisfaction is not only about numbers and percentages, but also about causes, consequences and correlations.
It is also suggested that the NPS method cannot accurately measure customer behavior. Customers can claim they will recommend a company or product in a greater or lesser extent, but it is not proven they will actually do that in practice. Besides that, the recommendation of one customer is not always as valuable as that of another one.
It is also a fact that the NPS is more useful in markets with a lot of competition where potential buyers have a greater tendency to ask friends or acquaintances for advice before deciding about a purchase. Another limitation of NPS is that it only takes into account customers, while also a lot of non-customers can act as detractors and generate bad word-of-mouth publicity.
Furthermore the NPS disregards important differences in the answer score distribution: no distinction is made between a 0 score and a 6 score, while there is obviously a substantial discrepancy between those two. It also makes no difference whether there are 70% Promoters and 30% Detractors or 40% Promoters and 0% Detractors. Both result in an NPS of +40 which doesn’t seem very logical.
Some caution is therefore required. It is obvious that the NPS on its own may not be sufficient as a management tool, but in the right framework and with some additional motivational questioning it can undoubtedly be a useful metric. Its greatest strength is the simplicity, making it functional and interpretable for every stakeholder. Considering the large number of big companies using this tool on a continuous basis, it certainly has proven its worth.
To be clear, NPS is only a starting point. After the analysis, the real work can begin: improving your organization and taking actions to boost your NPS. This will be a long term project, but the NPS allows you to perfectly assess at which stage your organization is in this growth process.
“Net Promoter” is a registered trademark of Fred Reichheld, Bain & Company and Satmetrix.