NPS, which stands for Net Promoter Score, is a simple method that can indicate how your customers think about you - be it positively, negatively, or neutrally. It is an extremely popular survey question amongst companies and organizations to measure customer satisfaction and customer loyalty. But...
...What Is NPS Exactly?
It was developed in 2003 by Fred Reichheld of Bain & Company, in collaboration with Satmetrix. They even have a dedicated site for it. What they wanted to accomplish was to create a customer satisfaction score that would be easy to survey and easy to interpret, yet would also be comparable between different industries. Sounds tricky, but they managed to do it.
What it does, is that it asks just one simple question:
'How likely is it that you would recommend our company to a friend or colleague?'
The reasoning behind this is quite simple: if you like using a product or service from a certain company, you are more likely to want to share this with others. This likeliness of sharing gets scored on a scale of 0 to 10 - or not at all likely to extremely likely. Of course, the more you'd like to share it, the higher you score a certain company. However, if you've had a bad experience with this company, you're going to score it a little lower.
This brings us to our next point.
Promoters, Passives, and Detractors
It probably sounds more fancy than it really is. Promoters, passives, and detractors are just the three different classes on the NPS scale. As already mentioned, this scale goes from 0 to 10, and depending on how high or how low you score a certain company, you'll populate the following class:
So in the end, after you've completed your survey, you'll get a certain percentage of respondents as detractors, a certain percentage as passives, and a certain percentage as promoters. Based on these percentages, you can then calculate your very own NPS as such:
NPS = % Promoters - % Detractors
Two things you might have observed here: firstly, the NPS outcome isn't a percentage like promoters and detractors are, and secondly, the passives class is missing from the equation. Let's look into the first observation first.
How To Use the NPS
You will usually see the NPS of a company being reported in one of two ways: either with a percentage sign behind it, or with a - or + in front of the number. Technically, the last one is the only correct one, since the outcome is not a percentage of something. This is a common misconception, because the way you calculate the NPS is by subtracting a percentage from another percentage, so it would make sense. However, the outcome is merely the difference between the two, and not a percentage of something else.
In this form, the scale of possible outcomes is from -100 up to +100. An NPS above 0 is regarded as good, and an NPS above +50 is regarded as exceptionally good. As with most things exceptional, this last one is highly uncommon.
To put this into perspective, let's take a look at some well-known companies out there, and see how they score on their NPS:
source: 2013 Net Promoter Industry Benchmark, Satmetrix
Critical Remarks About the NPS
Now, let's look at our second observation, which was that the passives group is missing from the calculation. The NPS basically assumes that promoters will spread positive word-of-mouth, whereas detractors will spread negative word-of-mouth. Since the passives are neutral, they supposedly won't spread any word-of-mouth, so that's why they're not taken into account in the calculation.
However, in practice, this is a group that should certainly not be overlooked. They can be converted to promoters relatively easily, but they can also be converted to detractors relatively easily. This means that they can either be turned into an asset, or into a liability. Plus, even by telling their friends something that is more or less neutral, they could inadvertently discourage them from using your service or product:
'Yeah, their potatoes are alright, but nothing special really.'
Not All Net Promoter Scores Are Created Equally
Another thing that is worth mentioning is that between similar outcomes there can be a big difference within the different classes. To put that a little differently: two different sets of promoters % and detractors % can have a same NPS. Say for example that you have an NPS of +20, meaning your potatoes are receiving some positive word-of-mouth. Now, this score could have come from either 60% promoters with 40% detractors, or from 20% promoters with 0% detractors. So, 60% - 40% = +20, but at the same time 20% - 0% = +20 as well. They have the same outcomes, but obviously big differences in distribution of the different classes.
Then, lastly, there are also some other limitations that are subject to skepticism. For example, the fact that it only takes into account current customers, even though non-customers can also significantly impact the word-of-mouth reputation.
Then there are some that say it is too simple, and that there is insufficient scientific base for the outcome. Also, some critics are stating that, even though people say they will recommend your company to friends and colleagues, they don't actually always do it.
So, it is not a method that can be used without caution, and on its own it might not be sufficient enough as a management tool. However, due to its simplicity and its versatile use, it has proven to be an extremely popular method amongst companies of all sizes for measuring customer satisfaction and customer loyalty. It is especially useful for quantifying trends, meaning that you can easily see how your NPS is progressing over time.
If combined with proper research after the survey, a company can discover reasons why it scores badly or why it scored highly, and then decide upon a plan to further improve its score. This is where the real work begins.
NPS In Super Simple Survey
All the above, especially how to calculate the NPS, is just some background information that might be relevant for you to know if you're going to put the NPS question in your questionnaire. Obviously we'll do all the calculations for you.
If you add the question about the NPS to your survey, you'll get a beautiful report similar like this for your NPS:
So, you can see how many for each class you have, you can see the percentages of each of these classes, and you can see your NPS. Simple as that.
We will always advise to not only ask the NPS question, but to also follow up with a simple 'Why?', because, as mentioned before, getting to know your NPS is only the first step - the real research begins when you start looking for ways to improve.
Can't wait to put this knowledge into practice and find out your company's NPS? Sign up for free to discover what your customers think of you!
'Net Promoter' is a registered trademark of Fred Reichheld, Bain & Company, and Satmetrix
Photo credit: Tommy Hemmert Olesen (thanks, Tommy)
Dec 17, 2013