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Net Promoter Score

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What is Net Promoter Score?

The Net Promoter Score (NPS) methodology is a tool for measuring customer satisfaction and willingness to recommend a company, product, or service to others. The NPS is based on a simple question: “On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?
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Customers are divided into three groups based on their responses:
promoter

Promoters:

Rate the company/product/service 9 or 10. They are devoted and excited customers who openly recommend the company to others and can generate new business.

passive

Passives:

Rate the company/product/service a 7 or 8. They are satisfied but not as engaged as promoters. There may be a risk that they will switch to a competitor if they receive a better offer.

top detractor

Detractors:

Rate the company/product/service from 0 to 6. They are unsatisfied customers who have the potential to negatively impact the company’s reputation by sharing their negative experiences.

The NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. The score can range from -100 to +100, with higher values indicating greater customer satisfaction and potential for growth and loyalty.
nps formula
The Net Promoter Score (NPS) methodology is renowned for its simplicity and ease of interpretation of results. It enables companies to monitor and benchmark their performance over time and against rivals. Furthermore, NPS facilitates identifying specific ways to enhance customer experience, promote positivity, and mitigate negative impact on customer satisfaction.
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Net Promoter Score (NPS) is highly correlated with a company’s turnover.

The Net Promoter Score (NPS) methodology correlates with a company’s revenue, though this correlation may vary depending on the industry and other factors. NPS can act as a gauge for measuring customer satisfaction and loyalty, which are key to a company’s success and growth.
A high NPS score signifies that the company has a greater number of satisfied and loyal customers (promoters). These promoters tend to suggest the company to their acquaintances, potentially resulting in more new customers and increased revenue. Promoters also tend to exhibit brand loyalty and make frequent repeat purchases, fostering sustainable growth.
Conversely, a low NPS score indicates a preponderance of dissatisfied customers (detractors) who could tarnish the company’s image and result in customer attrition. Critics can have a detrimental effect on a business by spreading negative experiences and discouraging potential customers, ultimately resulting in reduced sales and limited growth.
While there is a correlation between Net Promoter Score (NPS) and company turnover, it should be noted that NPS alone is not the sole determining factor. Other influential factors include product and service quality, the competitive environment, as well as marketing and sales strategies. However, NPS offers valuable insights into customer satisfaction and loyalty. Companies can leverage this information to pinpoint areas for improvement and make strategic decisions that can significantly impact revenue growth and overall company success.

Advantages and Disadvantages of Net Promoter Score (NPS):

Net Promoter Score (NPS) serves as a metric for gauging customer satisfaction and loyalty, but it has both pros and cons.
Benefits:

Simplicity:

NPS is a simple method, consisting of a single question and a simple calculation. This makes it easy to comprehend for both businesses and clients.

Comparability:

NPS enables companies to compare their performance over time and with competitors, offering valuable benchmarks for evaluating the effectiveness of strategies and changes.

Identification of promoters and critics:

The Net Promoter Score (NPS) segments customers into three groups: promoters, passives, and critics. This segmentation enables companies to recognize their most devoted patrons, as well as those who are unhappy and may have a detrimental impact on the company.

Customer loyalty:

The Net Promoter Score (NPS) often correlates with customer loyalty. A higher NPS typically indicates greater customer loyalty and the likelihood of repeat purchases.

Disadvantages:

Limited information:

NPS only offers general insights into customer satisfaction and loyalty. It does not provide in-depth details on specific aspects that impact the customer experience. To gain a more comprehensive understanding, InsightSofa should utilize supplementary questions or combine NPS with other research methodologies.

Simplified view:

Conducting an NPS survey based on a single question may offer a restricted perspective on customer feedback. For instance, a customer who gives a lower rating due to a specific issue might still hold a positive affinity with the company for other reasons. Hence, it is advisable to include supplementary questions following the NPS query in InsightSofa.

Contextual factors:

NPS may be impacted by the context of the questioning, including the location, timing, or method of inquiry. These factors can skew results and fail to offer an unbiased picture. InsightSofa provides comprehensive options for when and how polling should occur to ensure accurate data.

Lack of an action plan:

The Net Promoter Score (NPS) alone does not automatically provide a company with the specific direction on how to improve the customer experience. Further analysis of the data is necessary to develop an action plan based on solid information. Utilize InsightSofa’s other modules to gain a clearer understanding of this direction.