The net promoter score changed the way businesses measure success and predict growth. Since its invention in 2003, it has set the standard for customer experience metrics. This article will answer the following questions:
- What is net promoter score?
- What is a good net promoter score?
- Why is net promoter score important?
What Is Net Promoter Score?
What is a net promoter score (NPS)? To give a simple definition, it is a market research metric that measures customer experience. Companies use it to assess customer loyalty and predict business growth.
NPS was originally developed in 2003 by Fred Reichheld of Bain and Company. The metric is now used by millions and considered the gold standard of customer experience metrics.
The net promoter score question is the key to collecting data for this metric. To determine their NPS, a company will ask customers one simple question: “How likely is it that you would recommend this organization to a friend or colleague?” Customers then provide an answer between one and ten. The company will then divide customers into three categories based on the answer they provide:
- Promoters (score of 9-10) – Loyal and enthusiastic customers who not only keep buying, but bring others with them.
- Passives (score of 7 or 8) – Passively satisfied customers who are susceptible to being whisked away by a competitor with a better offer.
- Detractors (score lower than 6) – Unhappy customers who diminish an organization’s reputation and may even detract others from buying from them.
The net promoter score calculation is simple. The percentage of detractors is subtracted from the percentage of promoters. Even though the calculation is performed with percentages, the score is given in the form of an integer.
What Is A Good Net Promoter Score?
What is a good net promoter score? Net promoter scores fall between -100 and 100. Anything above 0 is considered a decent score because that means a company has more promoters than detractors. A perfect score would be a score of 100, but no company has ever achieved this. Some of the most successful and well-liked companies in the world still have a hard time getting within twenty percent of 100.
Bain suggests these categories for interpreting a net promoter score:
- Above 0 – good
- Above 20 – favorable
- Above 50 – excellent
- Above 80 – world-class
It’s important to keep in mind average scores vary a significant amount depending on the industry. For example, in a 2018 study by the Temkin group, internet service providers had an average NPS of 0 while auto dealers had an average NPS of 39.
Net Promoter Score Example
To give a little more clarity on the topic, here is a net promoter score example from a brand that has a loyal fan-base: Apple. Apple is known for providing excellent customer service experiences and leading the way in product innovation. The last known Apple net promoter score was a score of 68. Since it is greater than 50, this is considered an excellent score. Many people look to apple’s customer service and experience because of their NPS score. The industry average for consumer brands and electronics is 45, making Apple a couple of points above average for its industry.
Why Is Net Promoter Score Important
Why is net promoter score important? What sets NPS apart from other success metrics is that it focuses on customer satisfaction, rather than company sales and revenue. It acknowledges the fact that a company’s success is based on more than just generating revenue, but working to serve customers and improve their lives. When this is the focus, brands can’t help but turn customers into advocates. Customers who feel understood and cared for will always come back and bring others with them.
Harvard Business Review referenced data collected by Fred Reichheld to support the importance of the Net Promoter Score in his book, The Ultimate Questions 2.0. He highlighted 11 public firms with leading NPS scores and noted that their median total shareholder return was five times that of the US median.
This caused firms all over the world to begin using this metric. Unfortunately, with its rising popularity came a rise in misuse and manipulation of net promoter scores. Companies would find ways to bribe or entice customers to give them higher scores on their surveys. To correct this, Reichheld developed a complimentary metric called “earned growth rate.”
Earned Growth Rate
Earned growth rate is the accounting-based counterpart for the net promoter score. The goal of earned growth rate is to give firms a data-driven connection between satisfied customers, repeat purchases, word-of-mouth recommendations, a strong company culture, and business results. Since survey scores are inherently soft, earned growth rate provides companies with a hard metric they can hold employees accountable to. Earned growth rate measures revenue growth specifically from returning customers and their referrals.
Earned growth rate consists of two components. The first is net revenue retention (NRR) which is how much revenue came from customers who were already with the company the previous year. The second is earned new customers (ENC) which is how much revenue came from new customers who were “earned” through referrals. This does not include customers who came through other marketing or promotional channels, since those customers would be considered “bought.” To calculate earned growth rate, combine these two components, then subtract 100%.
Net promoter score requires a simple calculation to determine a business’s overall success with providing positive customer experiences. NPS alone is easy to misuse or manipulate, but partnering it with earned growth rate gives companies an auditable, data-driven metric to gauge their performance.