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00:00 Introduction to the Net Promoter Score
00:23 What makes NPS so popular
01:03 The NPS question
01:55 What replaces NPS
02:17 Benefits of the Net Promoter Score
02:26 NPS calculation
04:18 NPS formula
04:44 How to interpret the Net Promoter Score
06:22 The process of NPS improvement
07:43 NPS Rating Tracking
08:27 Ideas for improving NPS
10:02 Variations of the NPS
10:31 Criticism of the Net Promoter Score
12:44 Cultural differences in the NPS
13:40 Manipulating the Net Promoter Score
15:25 Use NPS to measure customer loyalty
15:53 Don’t overdo the NPS
What makes NPS so popular in the business world? This is easy to understand when you look at the title of the article that gave rise to it: “The one number you need to grow” by Fred Reichheld, December 2003, in the Harvard Business Review. I would recommend you take the time to read the original article in full. Net Promoter Score promises a radically simple approach to measuring and managing customer loyalty that should boost revenue growth. With CEOs always under pressure to To help companies grow faster, NPS offers them a clear path to get there: BINGO!
The NPS method asks just one question: “How likely are you to recommend [Company X] to a friend or colleague?” It is quick and straightforward. Respondents are asked to give their answer on a scale , where ten means "extremely likely" to recommend the company and zero means "not at all likely". That's it! Just this one question. #NPS is so popular that versions of the Net Promoter Score are now used by two thirds of Fortune 1000 companies!
Why is this such an important question? The words “Would you recommend it?” ask both whether you like it and whether you would risk your reputation for it. After all, you are the one recommending it to someone who is important to you and close to your heart.
Let's go through the steps of #NPS calculation in detail. Let's say we have 400 people answer our NPS survey question. Their ratings vary widely: from 4 people rating the company with the absolute lowest possible number ( a zero, meaning it is probably or even definitely NOT recommended), to 44 people who rate the company with the highest possible number (a ten, meaning it is extremely likely to be recommended). Let me tell you explain the steps to convert these ratings into an NPS score: calculating the Net Promoter Score.
The ratings are grouped and labeled into just three NPS categories. From left to right: Detractors for those who scored 0 to 6, Passives for those who scored 7 or 8, and Advocates for those who scored 9 or 10 points. In this particular survey, 188 people fall into the category of critics, 96 into the category of passives and 116 into the category of supporters. In other words, the 11 possible ratings (from 0 to 10) given by the 400 respondents were summarized in 3 answer categories.
In the next step of the #NetPromoterScore calculation, these three absolute numbers are then converted into relative numbers: 188 detractors out of 400 respondents are 47% of the total, 96 passives are 24% of the total and 116 promoters are 29% of the total.
These percentages are then used to calculate the Net Promoter Score. The NPS formula is: take the percentage of promoters and subtract the percentage of detractors, in this survey 29% minus 47%, resulting in an NPS of -18%, or more generally -18.
How should the Net Promoter Score be interpreted? We know two things with absolute certainty: an NPS of 100 means that everyone loves us, while an NPS of -100 means that everyone hates us. However, these are not the official terms or the official language that an NPS practitioner would use.
An NPS of 100 means that 100% of survey respondents are promoters (they all rated the question 9 or 10), there are no passives and no detractors.
An NPS of -100 means that 0% of survey respondents are promoters, there are no passives, and 100% are detractors (they all rated the question 0, 1, 2, 3, 4, 5, or 6).
Philip de Vroe (The Finance Storyteller) wants to make accounting, finance and investing fun and easier to understand. Learn the business and accounting vocabulary to talk to your CEO in your company. Understand how financial statements work to make better investment decisions. Philip offers financial training in a variety of formats: YouTube videos, live streams, classroom sessions, and webinars. Connect with me on LinkedIn!
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