NPS is a customer loyalty metric that measures customers’ willingness to not only return for another purchase or service but also make a recommendation to their family, friends or colleagues.
It is a powerful and effective technique, which can greatly increase a company's revenue if used properly.
The main advantages of NPS are close correlation with a company's growth and easy collection, interpretation and communication of the data.
First introduced by Fred Reichheld in his 2003 Harvard Business Review article,
the Net Promoter method describes a practical and reliable way of determining customers' satisfaction with a company’s goods or services.
NPS is calculated based on responses to a single question:
"How likely are you to recommend Your company to a friend or colleague?"
The Net Promoter Score is a number from -100 to 100 calculated by
subtracting the percentage of customers who are Detractors
from the percentage of customers who are Promoters.
Promoters are those who respond with a score of 9 to 10, and they are likely to create most value, such as buying more, remaining customers for longer, and making more positive referrals to other potential customers.
Detractors, responding with a score of 0 to 6 are believed to be less likely to exhibit the value-creating behaviors.
Responses of 7 and 8 are labeled Passives, and their behavior falls in the middle of Promoters and Detractors.
The NPS score is directly linked with increased business growth as evidenced by numerous research studies. Adopting this system gives access to an extremely timely and actionable-on data, which translates into fast improvements of customer experience and increased revenue and market growth.
NPS score is highly meaningful while being extremely easy to understand. It is simple to set up and can be placed anywhere on the website thanks to its minimalism.
Increased NPS also allows for lower customer acquisition cost and lets the customers effectively become part of your marketing efforts.
The largest and most successful companies in the world have been using NPS and it has been one of the core assets in their growth. Amongst them are Dell, Nokia, BBC, Western Union and many more.
Companies with the most enthusiastic customer referrals receive an NPS score higher than 80 while the median of more than 400 companies in 28 industries is only 16.
Since 2003, NPS has been widely adopted by more than two thirds of Fortune 1000 companies.