NPS: Does It Accurately Indicate Customer Satisfaction?

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The NPS or Net Promoter Score is a tool used by companies to quantify a customer’s likelihood to promote their product in interactions with other potential customers. It provides a simple and universally understood measure which is used to indicate customer satisfaction with the product, service or company. Despite the NPS being remarkably simple by nature, it can often be incorrectly used which can yield an erroneous snapshot of a customer’s true feelings and customer satisfaction. Let us consider how the NPS is calculated and some things to be aware of when using it.

NPS Calculation

A single question is asked of the customers: they must rate on a scale from 0 to 10 (0 being the least likely) how likely they are to recommend the company or product to an acquaintance. In doing so, the customers’ scores are divided into three categories indicating their loyalty to the company. These three categories are detractors, passives and promoters.

Detractors are people who score 6 and below and are defined as being more likely to go elsewhere when they next require the product or service. They might even cause harm to the company name by sharing their dissatisfaction to other people.

Passives score 7 or 8 and are defined as being neither for nor against the product or service. Passives will not spread dissatisfaction about the company, but they may be easily enticed to go elsewhere or they might well stay with the company. Promoters are people who score a 9 or 10 and are deemed to be very satisfied with the product or service and as such, will be very likely promote the company to acquaintances.

The NPS is calculated by deducing the overall difference between the percentage of detractors and percentage of promoters (% promoters – % detractors = net % promoters). This, by default, gives a score between -100 and +100. As a guide, most ‘normal’ American companies score below +10 while only the best performing companies reach between +50 and +80 on the scale.

So why is NPS useful?

NPS, according to the majority of users, gives a relatively accurate indication of the future growth the company can expect in addition to the depth of customer loyalty. Many find the NPS scale powerful in its relative simplicity while gleaning very valuable information. It is also readily understood by managers and employees alike and therefore makes it applicable and a useful tool to quantify company success.

For the sake of improvement, a company can then focus on the detractors by identifying what would turn them into passives and likewise converting passives to promoters. However, this can sometimes require further questioning, which brings us to the next considerations.

Drawbacks of NPS

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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