Net Promoter Score (NPS) is a powerful tool that helps businesses measure customer loyalty and satisfaction. It's widely used in the industry because it's simple to implement and provides valuable insights that can help businesses improve their customer experience. In this guide, we'll take a deep dive into NPS, its uses, pros, and cons, and how you can use it to drive customer loyalty.

What is NPS?

NPS is a customer satisfaction metric that measures how likely customers are to recommend a product or service to others. You might have seen it in action, when sometimes while using a product a pop-up will appear and ask you to rank from 1-10 "How likely are you to reccomand our product to a friend or a co-worker?" It's calculated on a scale of 0-10. Customers who rate the product or service as 9 or 10 are considered "promoters" (hence the P in NPS), while those who rate it as 0-6 are detractors. Customers who rate it as 7 or 8 are considered neutral.

To calculate the overall NPS, subtract the percentage of detractors from the percentage of promoters. The result will be a score between -100 and 100. A higher score means that more customers are promoters, while a lower score means that more customers are detractors.

NPS can be used to measure customer loyalty, identify areas for improvement, and track customer satisfaction over time. It's a valuable tool for businesses of all sizes and industries.

Uses of NPS

NPS has many uses in the business world. Here are some of the most common ways businesses are utilizing NPS:

1. Measure customer loyalty: NPS is an excellent way to measure customer loyalty. By measuring how likely customers are to recommend a product or service, businesses can get a sense of how loyal their customers are, and make assumptions regarding retention rates and churn.

2. Identify areas for improvement: NPS can help businesses identify areas for improvement in their customer experience. By tracking NPS over time and comparing it to industry benchmarks, businesses can identify areas where they're falling short and take action to improve. Businesses will often ask customers who respond to NPS to offer additional feedback, so the business can study their answers and improve accordingly.

3. Set goals: NPS can be used to set goals for customer satisfaction. Businesses can set a target NPS score as a KPI or an OKR, and work to improve it over time. Departments can be measured by how they help to "move the needle" of the NPS in the right direction.

4. Target users: Businesses can use individual NPS score to segment their users - Promoters can be beta-testers for new features and help with marketing efforts on other channels (such as rating the product and business on Google, App stores, etc). On the other hand, detractors can help the product teams with important feedback. Turning detractors into neutrals or even promoters can be a great signal for product improvement.

Pros of NPS

NPS has many pros that make it a valuable tool for businesses. Here are some of the most important pros:

1. Easy to understand: NPS is simple to understand and calculate. It doesn't require any advanced statistical knowledge, which makes it accessible to everyone in the organization.

2. Provides a clear benchmark: NPS provides a clear benchmark for businesses to compare their customer satisfaction to. By comparing their NPS to industry benchmarks, businesses can see how they stack up against the competition.

3. Helps identify promoters and detractors: NPS helps businesses identify their promoters and detractors. This is important because promoters are more likely to recommend the product or service to others, while detractors are more likely to share negative feedback, and actions could be taken based on that knowledge.

4. Predicts business growth: NPS is a good predictor of business growth. Studies have shown that companies with high NPS scores tend to grow faster than those with low scores.

Cons of NPS

While NPS has many pros, it also has some cons. Here are some of the most important cons:

1. Can be oversimplified: NPS is a simple metric, which means it can oversimplify the complexity of customer satisfaction. It's important to use NPS in conjunction with other metrics to get a more complete picture of customer satisfaction, and not to rely solely on NPS to deduct conclusions about your product and user satisfaction.

2. Doesn't provide actionable insights: NPS doesn't provide actionable insights on its own. Businesses need to dig deeper to understand why customers arepromoters or detractors and what they can do to improve their score.

3. May not be suitable for all businesses: NPS may not be suitable for all businesses, especially those with a niche customer base or a small number of customers. In these cases, NPS scores may not be statistically significant or may not accurately represent the customer base.

4. Can be influenced by external factors: NPS scores can be influenced by external factors, such as the economy or industry trends. Businesses should be aware of these factors when interpreting their NPS scores.

   Net Promoter Score (NPS) is overall a powerful tool for measuring customer satisfaction and loyalty. It provides businesses with a clear benchmark to compare their customer satisfaction to, and it helps identify promoters and detractors. The ease of use and calculate makes it a generally accepted method to agree upon when discussing the companies' next move.

   However, NPS is not without its flaws. It can oversimplify the complexity of customer satisfaction, and it doesn't provide actionable insights on its own. NPS may not be suitable for all businesses, and it can be influenced by external factors.

   Despite those flaws, NPS remains a valuable tool for businesses to measure customer satisfaction and loyalty. By using NPS in conjunction with other metrics and taking a holistic approach to customer satisfaction, businesses can gain a deeper understanding of their customers and take action to improve their customer experience.