Net Promoter Score NPS explained

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What is Net Promoter Score, and how can you make NPS a meaningful key performance indicator for your business? NPS is not just “market research” but an operating management tool that directly links to a company’s results. Welcome to the one video you need to understand, calculate and improve Net Promoter Score! • ⏱️TIMESTAMPS⏱️ • 00:00 Introduction to Net Promoter Score • 00:23 What makes NPS so popular • 01:03 The NPS question • 01:55 What NPS replaces • 02:17 Benefits of Net Promoter Score • 02:26 NPS calculation • 04:18 NPS formula • 04:44 How to interpret the Net Promoter Score • 06:22 The process of NPS improvement • 07:43 NPS rating follow-up • 08:27 NPS improvement ideas • 10:02 Variations of NPS • 10:31 Criticism of Net Promoter Score • 12:44 Cultural differences in NPS • 13:40 Gaming the Net Promoter Score • 15:25 Use NPS to measure customer loyalty • 15:53 Don't overdo NPS • What makes NPS so popular in the business community? That’s easy to understand when you check out the title of the article that launched it: “The one number you need to grow”, by Fred Reichheld, December 2003, in the Harvard Business Review. I would recommend you to take the time to read the original article in full. Net Promoter Score promises a radically simple approach to measure and manage customer loyalty, which should kickstart revenue growth. As CEOs are always under pressure to grow the company faster, and NPS offers them a clear path to get there: BINGO! • The NPS method asks only a single survey question: “How likely is it that you would recommend [company X] to a friend or colleague?” It’s quick, it’s straightforward. Respondents are asked to provide their answer on a scale where ten means “extremely likely” to recommend, and zero means “not at all likely”. That’s it! Just that one question. #NPS is popular to the point that versions of the Net Promoter Score are now used by two-thirds of Fortune 1000 companies! • Why is this such a powerful question? The words “would you recommend” both inquire whether you like it, as well as whether you would put your reputation at risk for it. After all, you would be the one recommending it to someone that’s important to you and that you care about. • Let’s go through the steps of the #NPScalculation in detail. Let’s say we get 400 people to respond to our NPS survey question. Their ratings turn out to be all over the place: from 4 people rating the company at the absolute lowest number possible (a zero, not likely or even definitely NOT going to recommend), all the way to 44 people rating the company at the highest number possible (a ten, extremely likely to recommend). Let me take you through the steps to turn those ratings into an NPS score: the Net Promoter Score calculation. • The ratings are grouped and labeled into just three NPS categories. From left to right: detractors for those who scored 0 through 6, passives for those who scored 7 or 8, and promoters for those who scored 9 or 10. For this particular survey, 188 people fall into the detractor category, 96 into the passives category, and 116 into the promoters category. In other words, the 11 possible ratings (from 0 through 10) given by the 400 respondents are aggregated into 3 response categories. • As the next step in the #NetPromoterScore calculation, these three absolute numbers are then converted into relative numbers: 188 detractors out of 400 respondents is 47% of the total, 96 passives is 24% of the total, and 116 promoters is 29% of the total. • Those percentages are then used to calculate the Net Promoter Score. The NPS formula says: take the percentage of promoters and subtract the percentage of detractors, in this survey 29% minus 47%, which leads to an NPS of -18%, or more commonly expressed as -18. • How to interpret the Net Promoter Score? Two things we know absolutely for sure: an NPS of +100 means everybody loves us, while an NPS of -100 means everybody hates us. Now, those are not the official labels, or the official language that an NPS practitioner would use. • An NPS of +100 means that 100% of the survey respondents are promoters (they all rated the question with a 9 or 10), there are no passives, and no detractors. • An NPS of -100 means that 0% of the survey respondents are promoters, there are no passives, and 100% are detractors (they all rated the question with a 0, 1, 2, 3, 4, 5 or 6). • Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers finance training in various formats: YouTube videos, livestreams, classroom sessions, and webinars. Connect with me through Linked In! • Want to get access to bonus content, and/or express your gratitude by buying me a cup of tea? Join my channel as a member through / @thefinancestoryteller

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