Updated: January 24, 2024 - 8 min read
What is NPS?
Net Promoter Score (NPS) is used by many companies to map out how well their products are doing with their current customers.
The system was developed by Fred Reichheld when he launched a research project to find out if there was a better alternative to traditional customer satisfaction surveys. Fred Reichheld and Satmetrix (who supplied the data) tested a variety of questions to see how well they aligned with customer behaviour.
They came up with the ultimate NPS question. ‘How likely are you to recommend this service/product to a friend/colleague?’ They found that users who responded highly to this question were more likely to repurchase and less likely to churn.
With a little more research, they matched the survey answers to the purchase history of customers, and verified instances where a referral really happened. From 4,000 customers, they created 14 case studies, a sufficient enough sample size to accurately determine “which survey questions had the strongest statistical correlation with repeat purchases or referrals.”
When Reichheld tested this new metric for growth across a wide variety of companies, he found that those with high NPS score, grew almost twice as fast as their competitors. The message was clear; NPS correlates with growth.
Benefits of NPS
Bain, the power behind NPS, state five main benefits to using NPS.
Simplicity: The survey questions are easy and require little work on the part of participants.
Ease of use: You don’t need fancy tech to collect responses, as the survey can be carried out via email, phone, texts, or any other kind of messaging.
Quick follow up: NPS responses can quickly be applied by leadership.
A growing body of experience: As more professionals apply NPS, the more perspectives we have on how best to use it.
Adaptability: As ‘an open-source method’ there are no hard and fast rules on how it can be used, and can be adapted to fit the need.
While NPS isn’t the only method that measures customer satisfaction, it is a powerful one.
How to calculate NPS:
Carry out a survey of your existing customers, asking them to rate your product out of 10.
Split them up into 3 groups, depending on where they fall on the scale
Detractors: Scoring 1-6, these customers either actively dislike or have some significant issues with your product and will probably tell others to avoid it.
Passives: Scoring 7-8, these customers think your product is alright and continue to use it, but would easily switch to an alternative that better solves their problem.
Promoters: The holy grail of customers. Scoring 9-10, these customers are loyal
and would probably recommend it to others.
Calculate your score by subtracting the percentage of detractors from the number of promoters.
NPS is expressed as an absolute number between -100 and 100. (Eg 20% detractors and 25% promoters leaves you with an NPS of 5).
An NPS above 0 is generally considered a ‘good’ NPS score.
With NPS what we’re trying to achieve is a number reflecting customer loyalty. We want to know how many of the people who use our product are happy with it.
What do we want from Promoters?
Promoters are long-term customers, but they’re much more than that.
You can rely on Promoters for word-of-mouth marketing. They’ll be the ones most likely to tell their friends and family about your product and recommend it to them.
They’re also very useful for your marketing team, engaging with your content and getting involved in user-generated content strategies.
They can also be more easily incentivized by referrals schemes, and will be more willing to leave you with constructive feedback in surveys.
Help your promoters to help you, by making promotion easy. If you introduce a referral scheme, keep it simple. These people are your #1 fans, but that’s no reason to turn referral schemes into an obstacle course.
The ideal referral scheme has a clear action with a clear result. “When your friend signs up, you’ll get $10 credit.” “Shout us out on social media for a free 3-day trial of premium.”
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How to Use NPS Like a *Smart* Product Manager
Now you’ve got your positive NPS score. Job done, everyone loves us, pat on the back, lets all head to the bar for happy hour.
Like all things in the product, that NPS score is more than just a number. A smart Product Manager knows that it needs to be unpacked.
Look at more than just the % of Promoters
While it’s great to know that 30% of your customers are absolutely loyal and adore your product, it’s important not to have that as your only takeaway.
Getting your NPS score is not the end of your customer feedback journey. It’s one number that helps you understand how your customers feel about your product.
If your NPS score reveals that 50% of your customers are Detractors and will ultimately lead people away from your product, you need to understand why.
Look at more than just Product
A customer’s opinion of a product isn’t only formulated around the product itself.
Branding, customer service, and company values, also play big roles in influencing customers. NPS gives you a very broad overview.
When your stakeholders come to you, concerned that the NPS score has dropped, don’t only look inwards. It’s important to ask ‘why’ and look at marketing, UX/UI, company reputation, etc.
There might be nothing wrong with the product itself, the issue could be with customer service, of over-saturation on social media channels. Someone can love your product but hate that they get far too many emails from you.
Customers can also become detractors for products they don’t fully understand, which means you need to revise your onboarding process.
It might be something that you, as a Product Manager, have no control over. If your company publicly takes a particular political or stance, the customers who don’t agree with it could become detractors, affecting your NPS.
Segment Your Users
User segmentation is commonplace in marketing. You can’t be everything for everyone, but you can serve different portions of your audience in different ways. By segmenting your users depending on where they land on the NPS scale, means that you can better serve a larger percentage of customers.
It will also be a helpful exercise if your overall NPS score is problematically low. You might be able to find the source of your detractors' discontent if you’re able to track and map their customer experience, and compare it with that of your promoters.
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Having a segment of promoters will be especially useful when it comes to testing experimental new features. They’re the most likely to give you honest feedback as they truly care about helping you to improve the product. And since they’re the people you most want to please, getting their feedback is absolutely vital.
A New Take on Loyalty
When we talk about NPS, what we’re really talking about is customer loyalty. Naturally, loyalty is absolutely key for growth and for the sustainability and profitability of a product. But thinking about loyalty in the wrong way can be catastrophic.
A common mistake in typical customer satisfaction measurement, is to categorize any customer who feels slightly more positive than neutral as ‘satisfied.’ When you think about the products you really love, the products which you couldn’t live without, would you rate them a 6 out of 10? Probably not, but traditional customer satisfaction surveys would probably mark you down as a loyal customer.
If a competitor to your 6/10 products came along, and offered a 7, 8, or 9 out of 10 experience, you’d most likely switch to them instead.
NPS helps us to re-think how we approach loyalty, but allowing us to segment and then focus on our biggest fans. It essentially raises the bar for what we consider to be a loyal customer.
So what is NPS actually good for?
Your NPS score opens the door to more conversations with your customers about your product. Those who are willing to answer an NPS survey may be open to contacting you further on what could make them happier.
NPS also gives you your promoters, the people who will act as cheerleaders for your brand. They’ll help you build growth loops into your product, and will be incentivized by marketing and referral schemes. It also helps us to rethink loyalty in a new way, and help us to keep our most valued customers at the forefront of our minds day to day.
If you’re ready to deep-dive into NPS, you can read the #1 book on the subject from Fred Reichheld, ‘The Ultimate Question 2.0.’
Need more answers? Check out this great talk from our friends at Pendo:
Updated: January 24, 2024