I think NPS is actually a pretty bad and overhyped metric. Don’t use it to make important decisions about your business.

NPS stands for “Net Promoter Score” and it was invented by a management consultant in 2003. It’s derived by asking customers “How likely is it that you would recommend this company to a friend or colleague?” on a scale of 0-10 and subtracting the percentage of people who say 0-6 from those who say 9 or 10.

Why is NPS problematic? Where do I start: first, to even theoretically conclude it’s reliable, you need a large and unbiased sample of your customers answering the question. This usually doesn’t happen. Except in rare cases, survey responses are sub-20%. And, invariably, the people responding are much more likely to hold extreme, non-representative, views.

Second, there’s a lot of academic literature that casts doubt on NPS’s utility. This paper (https://lnkd.in/eCXMWGRK), for example, shows that NPS is no better than other measures at predicting much of anything in a business. There are many more papers like this.

The deeper issue is that there are better, more representative metrics that actually get at what NPS is attempting to measure: customer satisfaction, loyalty, and referral excitement.

For example, if you run a subscription business, customer retention is a better and more direct way to observe customer satisfaction. If you run a business in which customers place multiple orders (which is most businesses) repeat order rate is better. If customers aren’t happy, they’re pretty likely to cancel / not reorder. Retention and reorder rate metrics also have the benefit of having a direct financial impact on your business.

Even the thing that NPS is directly asking–how likely is a customer to recommend your brand–can be better determined by…actually looking at whether they have recommended your brand. You can do this through referral programs, checkout surveys that ask how customers heard about your brand, or many other ways which get at your referral rate.

Look, I am saying you should throw out NPS completely? Probably not. I can imagine, for example, that asking the NPS question to a customer right after they purchase might be interesting. You don’t have reorder rate data yet and can use their answer to try to upsell or save them or something.

But NPS is not the be-all and end-all business supermetric which eliminates the need for others. Stick to the basics–acquisition cost, reorder rate, referral rate–and leave the fancy flavor-of-the-month metrics to the management consultants (full disclosure, I was one).