Understanding Net Promoter Score (NPS)
The NPS metric, like all standardized metrics, is calculated using a specific formula. In the case of NPS, the formula is %Promoters - %Detractors, giving a score of -100 to +100. You can see the formula by clicking Help ("?" icon) in LoyaltyLoop. This formula was developed after years of research by Bain & Company and Fred Reichheld and has become a worldwide standard metric of customer loyalty and satisfaction. Their research showed that customers who responded to the NPS question "How likely is it that you would recommend us (or this product/service/brand) to a friend or colleague?" fell into 3 groups. Each group of customers exhibited different attitudes and patterns of behavior, warranting different actions or responses from the company surveyed.
- Customers who answered the NPS with a 10 or 9 when using the Traditional 11-point scale (or "Very Likely" in the simplified 5-Phrase Scale) are called Promoters because they behaved as such. These customers had the highest rate of repeat purchases and represented over 80% of referrals.
- Customers who responded with an 8 or 7 (or simply "Likely") are called Passive customers, and had far lower repeat purchase rates - typically 50% less than Promoters. These customers are not motivated by enthusiasm or loyalty and are more likely to move on to another company if a better deal comes along.
NOTE: Passive customers are excluded from the NPS calculation because Passive customers don't "move the needle". Gaining more Promoters drives growth, whereas gaining more Detractors drives decline. Gaining more Passive customers does neither. The action you take to convert Passive customers into Promoters (or Detractors) is what matters. - The last group of customers gave responses of 6 or below ("Not Sure", "Unlikely" or "Very Unlikely"), they are referred to as Detractors. This group typically represents over 80% of negative word-of-mouth comments. While they represent sales and profits, their comments hurt the reputation of the business, push potential new customers away, and can demoralize employees.
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