Net Promoter Score Explained
At Ocular, we're a big advocate of the Net Promoter Score (NPS). Get to know your customers by making use of this helpful tool.
What is a Net Promoter Score?
It's a great tool for seeking consistent feedback over time, can be used to measure customer loyalty, and acts as an important indicator of business growth.
- The Net Promoter Score, or NPS, was developed and introduced in December 2003 by Fred Reichheld, a consultant and author on loyalty
- NPS is based on a carefully worded question, that consciously or sub-consciously requires the respondent to be more critical of their response, as they may be held to account for referring your product or service
- NPS divides every company's customers into three categories: Promoters, Passives, and Detractors
- Reichheld's research with thousands of companies showed NPS to be accurate in indicating whether a firm would grow (more consumers championed its service or product) or shrink (more were denigrating it).
Net Promoter Score Question Sample
"How likely is it that you would recommend [COMPANY NAME] to a friend or colleague?"
Customers then answer on a 0 to 10 point rating scale, and respondents are categorised as follows:
- Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fuelling growth.
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
Add up the total responses from each customer group; using a spreadsheet is very helpful at this point. Take the group total and divide it by the number of participants in order to get the percentage. To calculate your company's NPS, take the percentage of customers who are Promoters and subtract the percentage who are Detractors.
In a nutshell, your equation will look like this:
NPS = (No of Promoters - No of Detractors) / (Total No of Participants) x 100
Net Promoter Score Rankings
Examples of large corporations that use NPS include Apple and American Express. Apple began measuring NPS in 2007, its 163 stores in the United States achieved a good NPS of 58%. In 2012, Apple had increased its presence to 390 stores worldwide with an average NPS of 71%.
American Express incorporates NPS after important servicing calls, Amex says "For a promoter who is positive on American Express, we see a 10% to 15% increase in spending and four to five times increased retention, both of which drive shareholder value".
Having a customer base that promotes your product/service has many accredited benefits. The key benefit is an encouraging word of mouth which increases the chances of referral business. According to the New York Times, 65% of all new business comes from referrals.
As evidence of the range of results, and context for you, here are a range of different organisations and their NPS results (from published 2012 figures).
- Apple 71%
- Google 56%
- American Express 43%
- Facebook 31%
- Vodafone -4%
- ANZ Australia - 5%
- Westpac Australia -18%
Criticism - Use it with caution
Net Promoter Score is a great tool; however you can't simply use it in isolation. It should be used with additional questions to ensure you gather key contextual information. The other questions and their ordering depend on what you do, and how complex your products/services are.
There's actually no such thing as a typical Net Promoter Score, or range. Make sure to also engage with your customer base through social media for example. This way, you can also get direct feedback from customers and take immediate actions. The best methodology see's all of your customers surveyed so you get a true result across your overall customer base. However, some companies will look to exclude customers who have left during the period and/or those with whom they are experiencing relationship/service issues with. The removal of these customers (more likely to be detractors) will thereby likely deliver an enhanced score.