Net promoter score (nps)

Definition

Net Promoter Score (NPS) is a metric used to gauge customer loyalty and satisfaction by measuring the likelihood of customers recommending a company’s products or services to others. It’s based on a single question survey that categorizes respondents into promoters, passives, and detractors, providing valuable insights into customer sentiment and potential business growth.

5 Must Know Facts For Your Next Test

1. NPS is calculated by subtracting the percentage of detractors from the percentage of promoters, resulting in a score that can range from -100 to +100.
2. Promoters are customers who score 9 or 10 on the NPS survey, indicating high loyalty, while detractors score 0 to 6, suggesting they may spread negative feedback.
3. NPS provides actionable insights, helping businesses identify areas for improvement based on customer feedback and adjust their strategies accordingly.
4. Many companies use NPS as a key performance indicator (KPI) to track customer loyalty over time and compare it against competitors.
5. High NPS scores are often correlated with strong growth and customer retention, making it an important tool for measuring overall business health.

Review Questions

• How does the net promoter score help businesses assess their customer loyalty?
  • Net Promoter Score helps businesses assess customer loyalty by categorizing respondents into promoters, passives, and detractors based on their likelihood of recommending the company's products or services. This classification provides insight into overall customer sentiment and helps identify areas where the business excels or needs improvement. By analyzing these groups, companies can develop targeted strategies to enhance customer experiences and increase loyalty.
• What are some advantages of using NPS over other customer satisfaction metrics like CSAT?
  • One advantage of using NPS over other metrics like Customer Satisfaction Score (CSAT) is its focus on loyalty rather than just satisfaction. While CSAT gauges immediate feelings about a specific transaction, NPS assesses long-term loyalty and the likelihood of customers recommending the brand. This forward-looking approach allows businesses to predict growth and prioritize customer relationships more effectively, as loyal customers tend to generate more referrals and repeat business.
• Evaluate the impact of NPS on a company's strategic decision-making processes.
  • The impact of NPS on a company's strategic decision-making is significant, as it provides direct feedback on customer perceptions and loyalty. By integrating NPS data into their decision-making processes, businesses can prioritize initiatives that enhance customer experiences and address issues highlighted by detractors. Furthermore, tracking NPS over time enables companies to measure the effectiveness of their strategies and make informed adjustments to improve overall satisfaction and drive sustainable growth.

Related terms

Customer Satisfaction Score (CSAT): A metric that measures how satisfied customers are with a company's products or services, typically gathered through surveys.

Customer Lifetime Value (CLV): An estimate of the total revenue that a business can expect from a single customer account throughout the business relationship.

Churn Rate: The percentage of customers who stop using a company's product or service during a given time period, indicating customer retention.