Business Analysis Metrics: Net Promoter Score (NPS)
- Wendy Ni
- Apr 25, 2022
- 3 min read
In this blog, we discuss the following:
Think back to when you first started using the internet. What search engine platform came to mind first? Well, chances are Google, Microsoft Bing, or Yahoo came to mind and if they didn’t, at least you’ve come across these search engines at some point in life. Did anyone recommend you to use the one you have used ever since you could remember? Or did you just use it because everyone was using it? Has a friend ever suggested you switch to streaming shows on Netflix rather than Hulu? It's the same thing, we often turn to friends and family for opinions on most things and this is where successful businesses rely on keeping a good NPS.
What is a Net Promoter Score?
A net promoter score (NPS) is one way of calculating how loyal your customers are to share word of mouth about your brand’s products and services.
You can track your net promoter score with a simple survey that asks current customers one question: on a scale of 1-10, how likely are you to refer our product to a service or friend?
Detractors - anyone who answers between a 1 and a 6 is known as a detractor, or in other words, haters that will leave bad reviews and refuse to purchase those same products in the future.
Indifferent/passive - anybody who leaves a 7-8 is indifferent about the product - not bad or nothing special.
Promoters - lastly 9-10, these folks are the promoters that swear by and will preach the brand or products to anyone around them.
The net promoter score accounts for 20% to 60% of a company’s organic growth rate. On average, the leader in an industry has an NPS of more than double of its competitors. In order to generate sustainable word of mouth, the company has to be around 65-75 to generate positive word of mouth. For context, chewy.com a beloved pet eCommerce business that went public in 2019 had a net promoter score of 70 and they are considered a great business that generates a lot of word of mouth. Here are some companies also with stellar NPS scores.
Costco Wholesale Corporation - NPS of 79
Costco's last known net promoter score is 79. The industry average for Consumer Brands / Grocery is 24. So, Costco has gone above and beyond and proved to be excellent within the industry. Here is where they stand against others in the same industry.
Apple Inc. - NPS of 47
apple's last known net promoter score is 47. Although Apple's NPS does not compare to Costco, they still are above the industry average. The average for Consumer Brands / Electronics is 45. Here is where they stand against others in the same industry.
How to Calculate NPS?
Download Financial GPS’s free Net Promoter Score template to save time today!
Here’s how you calculate your net promoter score based on the below scenario. Let’s say you send the survey to 20 people:
Total Survey People = 20
Detractors = 5
Consistent score = 6
Sum total of all detractors = 30
Passives = 6
The score of this would not matter since we do not include them
Sum total of passives = 0, they cause indifference
Promoters = 9
A consistent score of 9
Sum total of all promoters = 81
Net Promoter Score = 51
NPS = Promoters - Detractors
51 = 81 - 30
As organizations look forward to their customer’s verdict through the NPS, it is important that the data that is collected captures what is relevant and important enough to act upon. This gives a second chance at a bad first impression possibly. See how you measure up against the competition and other scores in the same industry. NPS also gives the overall big picture of customer loyalty at a given moment. Ultimately, the net promoter score gives the motivation to drive room for improvement and growth. This shows that customer service has gone above and beyond increasing referrals and upscaling.
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