How likely are your customers to recommend your company? This is a simple question, but it can predict what will happen to your sales next quarter. Chances are you heard about the Net Promoter Score (NPS) metric, a metric widely used by companies to predict sales.
NPS is based on one question:
“How likely is it, from 0 to 10, that you would recommend [company ABC] to a friend or colleague?”
People are largely bucketed into three categories. Those who answer:
- 10 or 9 are considered “promoters”
- 8 or 7 are “passives”
- and 6 to 0 are “detractors”
The NPS is calculated by subtracting the proportion of detractors from that of promoters.
Let’s start with some data: An analysis of 193,220 NPS evaluations for 7 of the biggest US sports brands found that:
- A one-point increase in NPS predicted a 1.46% increase in sales the next quarter.
- NPS changes did not predict long-term changes.
- The absolute number of NPS didn’t predict changes in sales. So the static metric doesn’t help. You need to measure the metric several times and see the changes between different time frames.
Here’s how you should use the NPS to predict your short term growth:
- Regularly survey a sample of all your potential customers – not only current customers.
- Measure the short-term changes in the score. A static NPS won’t help to predict your growth.
If your NPS increases, your sales are going to increase in the short term (the next month or quarter).
If it decreases, use it as a general health warning bell.
Bottom line: NPS can be an indicator of your brand’s health. It is best used for products that are bought frequently and have emotional involvement, like fashion items.
Be mindful: The effectiveness of the NPS in predicting sales will depend heavily on how much data you can gather (and how you gather it). Surveying 10 customers may not provide much of a sample to get a good feel. Your potential customers’ pool must be quite large to get significant data.
