Net promoter score (NPS) Definition

What is Net Promoter Score (NPS)?

Net Promoter Score (NPS) is a widely used customer loyalty metric that measures the likelihood of customers recommending a company’s products or services to others. Developed by Fred Reichheld, Bain & Company, and Satmetrix in 2003, NPS has become a crucial tool for businesses to gauge customer satisfaction and predict business growth.In the customer experience industry, NPS is valued for its simplicity and effectiveness in quantifying customer loyalty. It provides a clear, actionable metric that allows companies to:

  • Track customer sentiment over time
  • Benchmark against competitors
  • Identify areas for improvement in products or services

NPS is calculated based on responses to a single question: “On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?” Respondents are then categorised into three groups:

  • Promoters (score 9-10): Loyal enthusiasts likely to fuel growth
  • Passives (score 7-8): Satisfied but unenthusiastic customers
  • Detractors (score 0-6): Unhappy customers who may impede growth through negative word-of-mouth

The NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters: NPS= %Promoters − %Detractors.

This results in a score ranging from -100 to +100, with higher scores indicating better customer loyalty. The impact of NPS on businesses can be significant. A high NPS often correlates with:

  • Increased customer retention rates
  • Higher customer lifetime value
  • Positive word-of-mouth marketing
  • Reduced customer acquisition costs

However, it’s important to note that NPS should not be used in isolation. It works best when combined with other customer experience metrics such as Customer Satisfaction Score (CSAT) and Customer Effort Score (CES) to provide a more comprehensive view of customer sentiment.

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