Net Promoter Score (NPS) is a discipline which allows companies achieve profitable growth by focusing on their customers and maintaining their loyalty.
NPS was developed by Satmetrix, Bain & Company, and Fred Reichheld, and became popular with the publication of Reichheld’s book, The Ultimate Question. It has become a popular metric due to its direct correlation to profitable growth.
To calculate a company’s Net Promoter Score, customers must first be divided into three categories:
Promoters – loyal customers who continue to buy from you and also tell their friends to do the same; Promoters drive company growth
Passives – customers who are satisfied, but could be lured by the competition easily; Passives are not enthused about your company
Detractors – your unhappy customers who are detrimental to business growth as they spread negative word-of-mouth
By asking a simple question “How likely is it that you would recommend [ABC Company] to a friend or colleague?” you can determine the size of each of these groups, and calculate your NPS as follows:
Take the percentage of customers who are Promoters and subtract the percentage of Detractors
Source: The Ultimate Question, Fred Reichheld
Important Follow Up Questions - Questions #2 & #3
If you simply ask for your Net Promoter Score and don't ask your customers WHY they chose that score, you are left with a metric, number, key performance indicator that you don't know how to change! Is the number lower than you expected? Why? Is it higher? Why? How easily could you convert a detractor or passive into a promoter?
In order to answer those questions, two follow up questions are essential in creating a useful Net Promoter System within your organization:
- WHY did you select that score?
- HOW can we improve?
You may think that you know what your customers want. Have you ever asked them to find out if you're right? Assumptions do not lead to sound business decisions. Information does. Ask your customers. They will appreciate you involving them.