Definitive Guide to Net Promoter Score

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Net promoter score, or ‘NPS’, is a way of measuring customer satisfaction. It presents customers with a simple survey, then feeds their answers into a formula to produce a single figure for benchmarking.

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What is the Net Promoter Score?

NPS is a benchmarking tool for customer satisfaction. The NPS method, which is based on a two-minute survey, gives insights about customer loyalty by measuring customers’ willingness to recommend a business to a friend or acquaintance.

NPS differs from other related benchmarks, such as the customer satisfaction score, by indicating a customer’s general sentiment about a brand as opposed to their opinion on particular interactions or purchases. Because of this, it crops up frequently in discussions about customer experience.

In addition, net promoter score is a standard benchmark used by companies worldwide. This makes it a good way for businesses to gauge their performance as compared to their competitors.

Calculation of Net Promoter Score

Step One: Determine the number of promoters, passives and detractors

The calculation of net promoter score is based on a two-minute questionnaire that asks customers to rate how likely they would be to promote a brand to their friends and acquaintances.

“On a scale of 0-10, how likely is it that you would recommend us to friends, colleagues or business associates?”

This basic question (give or take slight variations in wording) is the one upon which all net promoter score calculations are based. The survey participant is most often asked to provide a rating on a scale of 0-10. According to the number they choose, they are placed in one of the following three categories:
 

1. Promoters

Promoters are people who assign a score from 9-10. They are deemed more likely to exhibit behaviours that generate value, such as buying more, returning to the brand over a long period and referring more people. They have what is known as a high “lifetime value”.

2. Passives

Passives are people who give a score of 7 or 8. They are considered to be moderately satisfied. They might remain loyal to the brand, but also have the potential to switch allegiance to a competitor if the conditions are right. They won’t make special efforts to refer a prospect.

3. Detractors

Detractors give a score between 0 and 6. They are (usually) actively dissatisfied customers who have the potential to damage your brand reputation through negative reviews, social media interactions or word-of-mouth.
 
To calculate the net promoter score, you simply deduct the percentage of detractors from the percentage of promoters.

The worst possible score - i.e., the score that would be achieved if every customer was a detractor, is -100. The best is 100. However, both of these scores are highly unlikely in real life.

Passives count toward the total number of respondents, which decreases the percentage of detractors and promoters equally. This drives the overall score towards 0.

Step Two: Drill down into the net promoter score

To enable companies to drill down from the broader insight provided by the NPS, they are encouraged to follow the main question with a request that draws out the customer’s reasons.

These questions might, for example, ask about a customer’s opinion on the customer service they have received.

The responses can be translated into follow-up action and coaching measures. Since it can be tricky to analyse open-ended feedback objectively, companies often provide rating scales for these additional questions, too. The additional questions help companies understand the relative contribution of individual products, services and business areas to the NPS.

 

Sample Net Promoter Score Calculation

 

Let’s imagine a scenario where a company surveys 200 of its customers with the standard NPS question. Remember that the purpose of NPS to find out about general customer sentiment, so this question shouldn’t be targeted towards a particular product.


After the responses are totalled, 125 of the respondents are promoters, 42 are passive and 33 are detractors. The first step is to calculate these amounts as percentage values:

Promoters = ((200 - (42 + 33))/200) x 100 = 62%
Passive = ((200 - (125 + 33))/200) x 100 = 21%
Detractors = ((200 - (125 + 42 ))/200) x 100 = 16.5%

Then, we apply the net promoter score formula:

Company NPS = %Promoters - %Detractors
Company NPS = 62.5 - 16.5 = 46
The interpretation of NPS is highly complex and context-dependent. To find out more, see the section “How can I judge whether a net promoter score is good or bad?”.
 

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Why measure net promoter score?

As mentioned earlier, the NPS methodology is primarily intended to measure customer loyalty to a company or brand - in other words, how likely they are to buy again, act as a brand ambassador and resist pressure to defect. This last point can also be expressed as “churn rate” - that is, the likelihood of them cancelling a subscription or not repurchasing. This is important because it is cheaper to retain a customer than acquire a new one.

 

There are a number of ways in which measuring NPS can be beneficial for your company.

 

  1. Closing the feedback loop: The net promoter system gives companies a chance to “close the loop” - that is, to go vertical and gather more information from respondents. It also gives them chance to change a negative impression. Since an NPS survey only takes a minute of a customer’s time, it’s relatively easy to get them to engage.

  2. Easy to use: You don’t need to be a trained statistician to administer an online NPS poll. In a similar vein, the survey is intuitive and simple for customers to complete. You can send it to them via email or include it on your website as a pop-up after a transaction. The formula can be calculated with a basic spreadsheet.

  3. A common language for the customer conversation: By breaking down customers down into promoters, passives and detractors, the NPS system makes it easy to differentiate between them. Everyone in the company has a common set of definitions to work with

  4. Easier benchmarking: NPS is a standard metric used by companies globally. As such, it lets you place your score in the context of other scores in your industry and see how you measure up. NPS is also ideal for presenting to senior management as a big-picture snapshot of customer loyalty at a given moment.

  5. Driving growth: When companies take on the NPS question and begin to study it as a key metric, it helps them channel their customer service efforts and grow revenue through referrals and upsells.This is covered in more detail later in the article.
 

How to judge whether a Net Promoter Score is good or bad

What is a “good” net promoter score? To answer this question, it’s important to understand that there isn’t one “holy grail” number to strive for. The results vary highly from industry to industry.

 

Technically, any score above 0 can be considered a “good” score, since it means you have more promoters than detractors. According to global NPS standards, a score of above 50 is good, and above 70 is outstanding. However, both of these scores are rare.

 

A good way to use NPS is to look at the score of a close competitor and see how yours matches up.

 

However, it’s equally as important to look at the scores for your industry as a whole. In many sectors, a score in the 30s or 40s is something to aspire to. The average score for department and speciality stores (58) is higher than for airlines (35), which in turn is higher than for internet service providers (2).

 

If your score indicates that you are having more success with customer relationships than industry competitors, you can reasonably assume that your customers will stick around.

Understanding the limitations and potential of NPS

However, there are also many factors that are out of your control. Research has shown repeatedly that customers are more likely to report a bad experience than a good one. Your best and most loyal customers might simply not bother to score you at all!

 

For this reason, it’s important not to treat the number as an end in itself, but to look at the direction in which your NPS is trending. What story does it tell about your customer relationships? If your number of promoters is growing, this could mean that brand image is on the up.

 

On the other hand, a decrease in promoters relative to the number of passives could be a red flag for a potential increase in churn.

 

With this in mind, the key question for companies is: how can you act quickly on customer insights to improve customer experience, grow NPS and reduce the number of defections?

 

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How can a business improve its net promoter score?

There’s no silver bullet for improving NPS, but there are a number of best practices you can use to enhance the quality of your customer experience and achieve happier customer interactions.
 
 

Get everyone involved

Make sure the whole company is aware of NPS and why it is important - that is, not just as an end in itself. A low NPS is an issue for everyone. Ask sales, marketing and customer service to think of ways in which they could refine communication with prospects and get them excited about the business. 

Find a connection

Empathy is key - after all, customers are humans. They want to feel that a brand resonates with them and their values. If your company has hard-hitting values or a unique culture, think about how you could show it off.

Ask promoters for their opinion

These customers already like you and will be willing to help. Where do they get their sense of connection?
 

Ask detractors how you could improve

Detractors have real and genuine value to add. Accept their criticisms and use them as the basis for sincere reflection.

Consider whether your product is at fault

Use focus groups and customer visits to see how people interact with your product and understand whether it actually meets the needs of your customer base.

Promote customer advocacy

Customer advocacy schemes use personalised interactions to encourage existing customers to become promoters. Create an online community space for customers and offer appealing incentives for referrals. Think of creative ways to encourage them to share positive experiences on social media.

Improve front-line communication

The job of customer service reps is to build the human connection and show customers that their business is valued. Channel customers to the right rep and make sure that reps are equipped to offer personalised, efficient care.
 
The most important thing to remember is that NPS shouldn’t be a meaningless “vanity metric”. By following the correct into a stepping stone for improving customer service. The point of measuring NPS is not merely to make the competitive range for your industry, but to transform customer orientation into a central part of your company culture.
 

That’s a lot of info!

Here’s what you should take away from this article:

  • What is a net promoter score? Net promoter score, or ‘NPS’, is a way of measuring customer sentiment based on a simple two-minute survey.
  • How is a net promoter score calculated? A net promoter score reflects how likely customers are to promote a brand. The score is simply the percentage of detractors subtracted from the percentage of promoters.
  • Why measure net promoter score? When companies measure their net promoter score, it helps them properly channel their customer service efforts and grow revenue.
  • How can I tell if a net promoter score is good or bad? According to global NPS standards, a net promoter score above 50 is good, and above 70 is outstanding.
  • What are the limitations of net promoter score? Customers are more likely to report bad experiences, so the actual net promoter score isn’t as important as its direction.
  • How can businesses improve their net promoter score? Businesses can improve their net promoter score by:
    • Communicating empathetically
    • Perfecting the product
    • Promoting customer advocacy
    • Listening to detractors
 
 

Frequently Asked Questions

 

What is the Net Promoter Score?

Net promoter score, or ‘NPS’, is a way for businesses to measure customer satisfaction. To find it, customers answer a simple survey gauging how likely they are to recommend a business to a friend or an acquaintance. Their answers are then fed into a formula to produce a single figure used for universal benchmarking.

Who uses Net Promoter Score (NPS)?

Net promoter score is a standard benchmark used by companies around the world. Businesses use their net promoter score, or ‘NPS’, to measure customer satisfaction and loyalty to a brand. Net promoter score is a helpful tool for organisations to see how their customer service is perceived and where improvements might be made.

Why is Net Promoter Score important?

Net promoter score helps businesses gauge the quality of their customer service, particularly in relation to their competitors. Organisations can use their net promoter score to address any problems areas, improve the experience of their customers, monitor loyalty trends, and grow revenue through referrals and upsells.
 

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