Net Promoter Score (NPS) is essentially a management tool which can be useful in exploring the loyalty of the firm’s customer relationships. This is a substitute to the usual customer satisfaction research and research has shown that it is correlated with revenue growth.
More than two thirds of Fortune 1000 companies use this metric
The NPS is calculated based on responses to the questions of “How likely is it that you would recommend our company and service to a friend or colleague?” The most frequent scoring for this answer is a range from 10 to 0.
- Those who respond with a score of 9 to 10 are labelled Promoters, they are the most likely to create value for the company through their behaviours. Examples include spending more on the company, loyal for longer and spreading positive words about the company’s service to other potential customers.
- Those who respond with a score of 0 to 6 are considered to be Detractors who are generally less likely to exhibit the behaviours of a Promoter.
- Scores of 7 and 8 are essentially Passives and they are the middle ground between Promoters and Detractors.
- The formula for the NPS is as follows: Percentage of customers who are Promoters – Percentage of customers who are Detractors
For the purpose of the formula, Passives are counted towards the total number of respondents, and hence they decrease the percentage of Detractors and Promoters. Ergo, pushing the net score more towards 0.
Companies are very much encouraged to follow the question with an open-ended allowance for elaboration. In that way, the most important question can be answered which is the specific reason why they chose to rate the company with their answer.