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Net Promoter Score (NPS)
What is it?
A metric that gauges customer loyalty and satisfaction by asking how likely they are to recommend a product or service to others.
Net Promoter Score (NPS) is a vital concept in growth strategy for startups and businesses. By comprehensively understanding and leveraging NPS, organizations can gain deeper insights into customer sentiment, improve their products/services, foster customer loyalty, drive growth, and gain a competitive advantage in the market. It empowers businesses to make data-driven decisions, cultivate a strong customer-focused approach, and ultimately succeed in today's dynamic business landscape.
Net Promoter Score (NPS) is a metric used to measure customer loyalty and assess the potential for business growth. It was introduced by Fred Reichheld, a business strategist, in his Harvard Business Review article titled "The One Number You Need to Grow." NPS is based on a simple question, "On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?" Depending on the responses, customers are segmented into three categories: Promoters (score 9-10), Passives (score 7-8), and Detractors (score 0-6).
To calculate the NPS, the percentage of Detractors is subtracted from the percentage of Promoters, resulting in a score ranging from -100 to +100. A higher NPS indicates a higher likelihood of customers advocating for the product or service. This score serves as an indicator of customer satisfaction and loyalty, allowing businesses to identify opportunities for improvement and devise growth strategies accordingly.
Benefits of Understanding NPS:
1. Customer-Focused Decision Making: NPS provides valuable insights into customer sentiment and preferences. By understanding how likely customers are to recommend a product/service, businesses can tailor their offerings to better align with customer expectations, enhancing overall customer satisfaction.
2. Driving Customer Retention: A high NPS signifies a larger base of loyal customers who are more likely to stay with the company over time. By focusing efforts on improving NPS, businesses can reduce churn rates, increase customer retention, and extend customer lifetime value.
3. Identifying Growth Potential: NPS enables businesses to identify opportunities for organic growth. Promoters, being the most loyal and satisfied customers, can potentially bring in new customers through positive word-of-mouth recommendations. By concentrating on enhancing customer experiences and addressing the concerns raised by Detractors, businesses can convert them into Promoters, further fueling growth.
4. Benchmarking Against Competitors: NPS also serves as a benchmark for comparison against competitors within the same industry. By consistently tracking and comparing NPS scores with industry leaders, businesses can identify areas where they excel or lag, allowing them to take proactive measures to improve their competitive position.
5. Employee Engagement and Accountability: NPS not only reflects customer satisfaction but also indirectly measures the effectiveness of employees in delivering exceptional customer experiences. By incorporating NPS into employee performance evaluations or recognition programs, businesses can foster a customer-centric culture and reinforce the importance of providing a remarkable customer journey.
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