Net Promoter Score (NPS) is a simple but powerful way to measure customer satisfaction and loyalty. It is based on asking customers one question: “On a scale of 0 to 10, how likely are you to recommend this product/company to a friend or colleague?”
The answer to this question can reveal a lot about how customers feel about a business and how likely they are to spread positive word-of-mouth. NPS can also help businesses identify areas of improvement and track their performance over time.
How NPS Works
To calculate NPS, customers are divided into three groups based on their rating:
- Promoters: Customers who give a 9 or 10 are considered promoters. They are loyal, enthusiastic, and likely to refer others to the business.
- Passives: Customers who give a 7 or 8 are considered passives. They are satisfied but not excited, and may switch to competitors if they find a better offer.
- Detractors: Customers who give a 6 or lower are considered detractors. They are unhappy, dissatisfied, and likely to discourage others from the business.
NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. The result is a score between -100 and 100, where a higher score indicates a higher level of customer loyalty and satisfaction.
For example, if a business has 40% promoters, 40% passives, and 20% detractors, its NPS would be:
NPS = 40% – 20% = 20
A positive NPS means that there are more promoters than detractors, while a negative NPS means that there are more detractors than promoters. A zero NPS means that there are equal numbers of promoters and detractors.
What is a Good NPS?
There is no definitive answer to what constitutes a good NPS, as it may vary depending on the industry, market, and customer expectations. However, some general benchmarks can be used as a reference point:
- An NPS above 50 is considered excellent and indicates strong customer loyalty and advocacy.
- An NPS between 30 and 50 is considered good and indicates that customers are generally satisfied and likely to recommend the business.
- An NPS between 0 and 30 is considered fair and indicates that customers are indifferent or have mixed feelings about the business.
- An NPS below 0 is considered poor and indicates that customers are unhappy and likely to detract from the business.
It is important to note that NPS is not an absolute measure of customer satisfaction or loyalty, but rather a relative one. It can be used to compare the performance of different businesses within the same industry or market, or to track the changes in customer sentiment over time.
How to Increase Net Promoter Score
Increasing NPS requires understanding the reasons behind customers’ ratings and taking actions to improve their experience. Some common ways to increase NPS are:
Asking follow-up questions: After asking customers how likely they are to recommend the business, it is useful to ask them why they gave that rating. This can help identify the specific factors that influence customer satisfaction and loyalty, such as product quality, service delivery, pricing, etc.
Addressing customer feedback: Once the feedback is collected, it is important to analyze it and act on it. This can involve resolving customer complaints, improving product features, offering incentives or discounts, etc. Sometimes it may also necessitate a complete rethink of the entire value-chain of the business keeping the customer in mind. It is also important to communicate with customers and let them know that their feedback is valued and acted upon.
Creating customer advocates: Promoters are not only loyal customers but also potential advocates for the business. They can help spread positive word-of-mouth and attract new customers through referrals, reviews, testimonials, etc. To encourage promoters to become advocates, businesses can offer rewards or recognition programs, invite them to join online communities or events, solicit their feedback or suggestions, etc.
Conclusion:
Net Promoter Score is a simple but effective way to measure customer satisfaction and loyalty. By asking customers one question and calculating the score, businesses can gain insights into their strengths and weaknesses, benchmark their performance against competitors or industry standards, and take actions to improve their customer experience.