What is Net Promoter Score (NPS)?
Established by Bain & Company
in 2003 to help companies measure and evaluate customer loyalty, Net Promoter Score (NPS) serves as a strong alternative to the long-form customer surveys of yesteryear, because NPS focuses on one simple question: How likely are you to recommend this company/product/service to a friend or colleague? Customers answer the question by selecting a number on a one to ten scale, with 0 being not at all likely and 10 being extremely likely. These responses are then classified into three distinct categories:
- Promoters: Responses from 9-10
- Passives: Responses from 7-8
- Detractors: Responses from 0 to 6
A company establishes its NPS by subtracting the percentage of detractors from the percentage of promoters. (As the name implies, passives are removed from the calculation.) Scores can range from -100 (all detractors) to +100 (all promoters). Generally, scores greater than 0 are considered good and scores greater than +50 are considered excellent. Use Gainsight's NPS calculator widget
to help calculate your NPS score.
Companies are often encouraged to include follow-up questions as well. These questions are often open-ended and encourage consumers to elaborate on the score they submitted. These responses allow companies to better understand the customer as well as the overall metrics. They also provide companies the opportunity to create actionable plans to increase customer satisfaction as well as optimize financial benefits.
Does my business need NPS?
Unlike CAC, churn, and LTV, NPS is not a metric you can calculate based on basic business data. You need to do extra work to calculate NPS; specifically, you must administer an NPS survey to your customers on a regular (e.g., quarterly or biannual) basis. The extra work that NPS requires is worth it, though. Here’s why:
NPS allows you to evaluate and build a loyal customer base.
Loyalty is one factor that generally correlates with profitability and sales. NPS is a system that allows companies to link metrics in customer loyalty to actual business outcomes. By using NPS, you can get a glimpse into your customers’ future—what they’re going to do, not what they’ve already done. With NPS, your business gets a simple, easy-to-understand score to track customer loyalty over time.
NPS enables you to create more customer advocates.
Bain & Company data
showed that promoters (those that scored 9 or 10) account for more than 80% of referrals in most businesses. Using NPS allows companies to determine who the promoters are and how many are gained versus lost. This information allows companies to leverage customer advocates to spread positive word-of-mouth and send referral leads.
NPS helps you drive revenue growth and boost lifetime value.
Developing and implementing an NPS isn’t just about determining how many loyal customers you have; it’s about using that data to grow your business. Promoters are not only advocates for your business, but they also have a higher LTV. They are less price-sensitive and spend more than detractors. Promoters also tend to cost less in regards to marketing, which can lower CAC.
How do I implement an NPS survey?
Most businesses administer NPS surveys via email, at checkout, or at the point the customer accesses the software or application. That’s the easy part. It’s what you do with the data that’s tricky. Any business can use a survey tool to survey its customers. Individuals must then export the survey results to calculate the actual net promoter score. For this reason, many businesses consider NPS tools, but that’s also problematic, because while it automates the NPS administration and calculation aspects, the results aren’t inherently tied to the rest of your business’s metrics. Thus, when incorporating NPS into your business, look for a tool that integrates with your CRM software. Or even better, look for a Customer Success solution that features an NPS tool, because then you’re able to understand NPS as it relates to all customer behavior.