In this post I want to give a short explanation of what a Net Promoter Score (NPS) metric is and how it is calculated. In addition I want to suggest its use as a leading indicator of viral growth.
The simple formula for NPS is as follows:
(Number of Promoters — Number of Detractors) / (Number of Respondents) x 100 = NPS
Generally, a good rule of thumb to follow is that an NPS score below zero is bad an NPS above zero is good. An NPS above 50 is excellent. This metric is a great proxy for virility because it is asking a relatively simple but important question of current customers: “How likely are you to recommend this company to a friend or colleague?” A number greater than zero indicates that you have more brand promoters than detractors and that the general view of your brand in the marketplace is positive.
To take this one step further, viral growth asks how many new customers does each existing customer bring. The viral coefficient is simply the average number of invitations sent by each user multiplied by the conversion rate of invitation to each user.
A simple example is as follows: You have 1000 customers and each customer invites 10 friends to the new business. Of these invitees 25% become your new customers. Consequently, you will get 2,500 new customers. Then you divide your new customers (2,500) by your existing customers to get your viral coefficient.
This number says every current customer brings 2.5 new customers to your company. Then if this process repeats for another cycle you will have an additional 3,750 customers! (Remember it is highly unlikely that all consumers will continue to send out invitations, so for the sake of this example I made the assumption that only new customers were sending out new invites.) A healthy rule of thumb is if you maintain a viral coefficient that is greater than one, your company will grow indefinitely. If your viral coefficient goes below one your company will eventually stop growing and you will be forced to augment this growth by increasing your advertising dollars.
Think about some of the greatest business successes of the last decade: Facebook, YouTube, Dropbox, Twitter, Tumblr. They all owe a good majority of their success to having a fanatically viral product and benefiting from the tremendous growth that it provides. So next time you are coming up with a billion dollar idea, don’t forget to think about being viral!