What is NPS?

What is NPS?
Photo by Brooke Cagle / Unsplash

In the business world, measuring customer satisfaction is crucial. One popular method to gauge this is the Net Promoter Score (NPS). But what exactly is NPS, and why is it so significant? Let's delve into it.

NPS stands for Net Promoter Score. It's a metric used to assess customer loyalty and satisfaction based on one simple question: "On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?" Based on the answers, respondents are classified into three categories:

  1. Promoters (9-10): These are your most loyal customers who are likely to recommend your product or service to others. They're the advocates of your brand.
  2. Passives (7-8): These customers are satisfied with your product or service but aren't necessarily loyal. They might switch to a competitor if given a better offer.
  3. Detractors (0-6): These are the unsatisfied customers who are unlikely to promote your brand and might even dissuade others from choosing you.

How is NPS Calculated?

The NPS is calculated using the following formula:
NPS = (% of Promoters - % of Detractors) x 100


The score can range from -100 (if every customer is a Detractor) to +100 (if every customer is a Promoter). A positive NPS is generally seen as good, and a score above 50 is considered excellent.

Why is NPS Important?

  1. Simple & Understandable: NPS is easy to understand and doesn't require complex calculations. It provides a clear picture of customer loyalty with just one question.
  2. Predictive of Growth: Research has shown that companies with a higher NPS tend to grow faster than those with a low NPS.
  3. Feedback Mechanism: By identifying detractors, businesses can reach out to these unsatisfied customers, understand their grievances, and take corrective actions.

Conclusion

NPS is a powerful tool that offers businesses insights into customer loyalty and satisfaction. By regularly measuring and acting on the feedback, companies can continuously improve and ensure they're meeting the needs and expectations of their customers.