What is Net Promoter Score?
Net Promoter Score (NPS) is a customer loyalty metric used to measure customer satisfaction and identify areas of improvement. It’s based on one simple question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” Respondents are asked to rate the likelihood from 0 to 10, with 0 being not likely and 10 being extremely likely. NPS has become one of the most widely used customer loyalty metrics, due to its simplicity and effectiveness. It’s used by companies of all sizes, from large enterprises to small businesses.
How Does It Work?
NPS is based on the premise that customers can be divided into three categories: promoters, passives, and detractors. Promoters are customers who are very likely (9-10) to recommend a company or product. Passives are customers who are likely (7-8) to recommend a company or product. Detractors are customers who are unlikely (0-6) to recommend a company or product. The NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. For example, if 40% of customers are promoters and 30% are detractors, the NPS would be 10 (40% – 30% = 10). A higher NPS score indicates higher customer satisfaction and loyalty.
Advantages of NPS
NPS has a number of advantages over other customer loyalty metrics:
- Simple: NPS is easy to understand and measure, making it easy to compare different customer groups or cohorts.
- Actionable: NPS provides insights into customer sentiment and helps companies identify areas of improvement.
- Cost-effective: NPS is inexpensive to measure and analyze, making it a cost-effective customer loyalty metric.
Limitations of NPS
While NPS is a useful metric, it does have some limitations:
- Subjective: NPS is based on subjective customer feedback, which can be affected by customer mood or other external factors.
- Limited insights: NPS provides limited insights into customer sentiment and does not provide insights into customer behavior or other indicators of customer loyalty.
Conclusion
Net Promoter Score is a useful customer loyalty metric that can provide valuable insights into customer sentiment and loyalty. While it does have some limitations, it’s a simple, cost-effective way to measure customer satisfaction and identify areas of improvement. For more information about NPS, check out this guide from Qualtrics.