Net Promoter Score (NPS) is a widely used metric to measure customer loyalty and satisfaction. It was developed in the early 2000s and has since become an essential tool for businesses that want to understand customer sentiment and improve their overall customer experience. NPS calculation helps companies determine the likelihood of a customer recommending their products or services to others by asking a single question: “How likely are you to recommend us on a scale from 0 to 10?”
Calculating NPS is a relatively straightforward process that involves classifying respondents into three groups based on their scores: promoters, passives, and detractors. Promoters are those who give high scores of 9 or 10, indicating that they are most likely to recommend the company. Passives score between 7 and 8, implying neutrality, while detractors have scores of 6 or lower, showing dissatisfaction. The NPS is then computed by subtracting the percentage of detractors from the percentage of promoters, resulting in a value that can range from -100 to 100. This simple yet powerful indicator helps businesses identify areas for improvement and monitor progress over time.
Understanding NPS
The Net Promoter Score (NPS) is a widely-used metric that measures customer loyalty and satisfaction. It provides businesses with a simple way to gauge the overall perception of their products and services based on customer feedback. In essence, NPS helps businesses determine the likelihood of customers recommending their offerings to others.
To calculate NPS, customers are asked a single question: “How likely are you to recommend our company/product/service to a friend or colleague?” They respond using a 0-10 scale, where 0 means ‘not at all likely’ and 10 means ‘extremely likely’. Based on their responses, customers are then categorized into one of three groups: Detractors, Passives, and Promoters.
- Detractors (0-6): These customers are unhappy and may spread negative word-of-mouth. They are likely not to return for future purchases or recommend the company to others.
- Passives (7-8): These are satisfied but unenthusiastic customers who may be swayed by competitor offerings. They might not actively promote or criticize the company.
- Promoters (9-10): These are loyal enthusiasts who are most likely to recommend the company to others and act as ambassadors for the brand.
To compute the NPS, the percentage of Detractors is subtracted from the percentage of Promoters. The result is a number between -100 and 100, which represents the overall Net Promoter Score. A higher NPS indicates a larger proportion of satisfied customers and successful brand advocates, while a lower score may signal issues with customer satisfaction.
For example, suppose a company has 200 respondents to their NPS survey, out of which 120 are Promoters, 60 are Passives, and 20 are Detractors. The NPS calculation would look like this:
- % Promoters = (120/200) * 100 = 60%
- % Detractors = (20/200) * 100 = 10%
- NPS = 60% – 10% = 50
In this case, the company’s NPS would be 50. It is essential for businesses to monitor and analyze their NPS over time, as it can help identify patterns, uncover areas for improvement, and guide strategic decisions to enhance customer experiences.
Here is a simple and interactive chart to figure out what your NPS score would be based on the # of promoter, detractor and passive scores you may have.
NPS Survey Structure
Survey Question
The Net Promoter Score (NPS) survey is focused on a single question, asking customers how likely they are to recommend a product or service to others. This question is usually framed as, “On a scale of 0-10, how likely are you to recommend [Company/Product/Service] to a friend or colleague?” The responses are then categorized into three groups: Promoters (9-10), Passives (7-8), and Detractors (0-6).
Survey Template
An effective NPS survey template should be concise, clear, and easy to understand. It usually consists of the NPS question itself, followed by an optional open-ended question allowing respondents to provide additional feedback or comments. Survey software often provides customizable templates, making it simple for businesses to create and send out NPS surveys.
1. On a scale of 0-10, how likely are you to recommend [Company/Product/Service] to a friend or colleague?
2. What is the primary reason for your score? (optional)
Response Rate
For an accurate representation of customers’ opinions, it’s crucial to achieve a high response rate in NPS surveys. Improving response rates can be achieved by:
- Keeping the survey brief and to-the-point
- Ensuring the survey is accessible on various devices (mobile, desktop, etc.)
- Sending reminders to non-responders
- Choosing the appropriate survey distribution method (email, in-app, etc.)
A high response rate improves the reliability of the NPS calculation and helps businesses gain valuable insights from their customers.
NPS Calculation and Formula
The Net Promoter Score (NPS) is a widely-used metric to measure customer loyalty and satisfaction. It helps businesses gauge the overall sentiment of their customers and serves as a benchmark for customer experience. This section will provide an overview of the NPS calculation and formula, addressing promoters, detractors, and passives.
Promoters
Promoters are customers who are highly satisfied with your product or service and are most likely to recommend it to others. They rate their likelihood to recommend your business on a scale of 9 to 10. The number of promoters is essential in calculating the NPS, as they contribute positively to your score.
Detractors
Detractors are customers who are not satisfied or even frustrated with your product or service, and are likely to criticize or discourage others from engaging with your business. They rate their likelihood to recommend your business on a scale of 0 to 6. Detractors have a negative impact on your NPS, and it is vital to improve their experience to move them into the passive or promoter category.
Passives
Passives are customers who are neither promoters nor detractors. They rate their likelihood to recommend your business on a scale of 7 to 8. While they may not actively promote your company, they also won’t discourage others from engaging with it. Passives do not directly impact your NPS calculation, but it is still important to work on converting them into promoters by enhancing their customer experience.
To calculate the NPS, follow these steps:
- Collect responses from a survey asking customers how likely they are to recommend your business on a scale of 0 to 10.
- Segment the responses into promoters (9-10), passives (7-8), and detractors (0-6).
- Calculate the percentage of promoters and detractors by dividing the number of respondents in each group by the total number of respondents.
- Subtract the percentage of detractors from the percentage of promoters to arrive at the Net Promoter Score.
The NPS calculation is expressed through the following formula:
NPS = % of promoters – % of detractors
Keep in mind that NPS can range from -100 (all detractors) to +100 (all promoters). The higher the score, the better your company’s customer satisfaction and loyalty.
NPS in Different Industries
Products
In the product-based industries, NPS is crucial for evaluating customer satisfaction as it directly impacts the success of a company. A high NPS score implies that customers are more likely to recommend the product to others, boosting its sales potential. Different industries have different NPS benchmarks for comparing their performance against competitors. For instance, technology companies may have a different NPS range than automobile manufacturers. When analyzing NPS data, it’s essential to compare within the same industry to have an accurate understanding of customers’ perception of a product’s quality.
- Technology: NPS scores in the technology industry reflect the ease of use, innovation, and reliability of products. A high NPS score in this industry may indicate that the product is user-friendly and delivers value to users.
- Automobile: NPS benchmarks for the automobile industry are primarily driven by factors such as product performance, safety, and design. Comparing NPS scores within this industry helps manufacturers identify areas of improvement to enhance customer satisfaction and loyalty.
Services
Similar to product-based industries, NPS is crucial for evaluating customer satisfaction in service-based industries as well. There are different industry NPS benchmarks within the service sector, providing valuable insights into customer experiences and expectations. Some examples of service industries that use NPS benchmarks include:
- Retail: NPS scores in retail reflect customer satisfaction with the overall shopping experience, including product offerings, pricing, and customer service quality. Higher NPS scores may indicate exceptional service and lead to increased customer loyalty.
- Healthcare: In healthcare, NPS benchmarks allow organizations to assess patient satisfaction, which is crucial for the success of a healthcare provider. By analyzing NPS scores within the healthcare industry, providers can identify areas of improvement and enhance patient experiences.
In conclusion, NPS benchmarks play an essential role in analyzing customer satisfaction and loyalty across various industries. By comparing NPS scores within the same industry, businesses can identify their strengths and weaknesses and strive to improve their product or service offering, leading to increased customer loyalty and growth.
Importance of NPS
Net Promoter Score (NPS) is an influential metric used to gauge customer loyalty, satisfaction, and enthusiasm about a company and its products or services. Calculated by asking customers one question—”On a scale from 0 to 10, how likely are you to recommend this product/company to a friend or colleague?”—the NPS metric can play a vital role in understanding and improving the customer experience1.
NPS scores can be crucial for companies to assess and enhance their customer service strategies. A higher NPS indicates that customers are satisfied with the company and its offerings, making them more likely to recommend the brand to friends or colleagues. This, in turn, can lead to increased customer acquisition and foster the organic growth of the business2.
In addition to shaping customer service strategies, NPS enables companies to monitor customer feedback better, allowing them to fine-tune their products and services based on the customers’ perspectives. An improved understanding of customer feedback can lead to a more tailored and efficient customer journey, ultimately enhancing customer satisfaction2.
Furthermore, NPS can help a company evaluate and augment their customer loyalty3. Loyal customers can contribute significantly to a company’s revenue and growth as they are more likely to return for repeat purchases and advocate for the brand to potential customers. By continually addressing issues and refining the customer experience, organizations can improve their NPS, resulting in a more loyal customer base.
Footnotes
- https://www.hotjar.com/net-promoter-score/ ↩
- https://www.salesforce.com/eu/learning-centre/customer-service/calculate-net-promoter-score/ ↩ ↩2
- https://corporatefinanceinstitute.com/resources/valuation/net-promoter-score-nps/ ↩
Actionable Insights from NPS
A key aspect of the Net Promoter Score (NPS) is using the feedback provided by customers to gain valuable insights and improve business operations. These insights allow companies to develop informed action plans and make meaningful changes to their brand and products.
Firstly, companies should analyze NPS feedback and identify opportunities where they can enhance the customer experience. This information can help the organization prioritize areas that directly impact customer satisfaction, such as product quality, customer support, and overall service. By addressing these areas systematically, a company can significantly improve its NPS score.
Next, companies can analyze the feedback from promoters, passives, and detractors to gain an understanding of their different perspectives. These diverse viewpoints can help organizations find ways to transform detractors into promoters, while also maintaining the loyalty of current promoters. A higher percentage of promoters can lead to more recommendations, positive word-of-mouth, and organic growth for the business.
Moreover, actionable insights from NPS data can help prevent customer churn. By identifying the factors that make customers dissatisfied and addressing them proactively, organizations can minimize the likelihood of customers switching to competitors. This, in turn, can increase customer retention and improve the company’s performance in the long run.
Finally, businesses can use NPS feedback for enhancing their products and services. Continuous iteration and improvements based on customer opinions can help keep products aligned with customers’ needs and expectations, leading to increased satisfaction and a stronger brand reputation.
By using the insights obtained from NPS feedback, companies can make well-informed decisions to refine their brand and improve their offerings. This, ultimately, contributes to long-term business growth and success.
NPS Software and Programs
NPS software plays a crucial role in measuring customer satisfaction and loyalty. These programs often incorporate various methodologies for analyzing customer experience and calculating net promoter scores (NPS). Using NPS software programs can help your business streamline the process of sending surveys, collecting responses, and analyzing customer feedback to drive continuous improvement.
One of the key advantages of using NPS software is its ability to offer an online calculator for easily determining the NPS. A comprehensive NPS calculator can quickly determine the score based on customer responses to a single question: “How likely are you to recommend our product or service to a friend or colleague?”. Customers rate their likelihood on a scale of 0 to 10, with higher scores indicating higher levels of satisfaction and loyalty.
In addition to NPS calculators, many NPS software programs also offer a variety of features to enhance the customer experience. They can automate survey distribution, provide real-time reporting, and offer advanced analytics for dissecting customer feedback. These tools can aid businesses in understanding customer concerns or areas needing improvement.
Moreover, NPS programs integrate seamlessly with customer experience programs, enabling businesses to track their customer satisfaction scores alongside other vital metrics. By analyzing the data from multiple sources, businesses can gain a holistic view of their customer experience and take targeted actions to improve their NPS scores.
In conclusion, investing in NPS software and programs can be beneficial for businesses looking to enhance their customer experience and build loyalty. These tools not only simplify the NPS calculation process but also enable businesses to make data-driven decisions for achieving long-term success.
History and Criticism
Creator and Trademark
Fred Reichheld, a notable business strategist, introduced the Net Promoter Score (NPS) in 2003 as a simple way for organizations to measure customer loyalty and satisfaction. Based on a single question, “How likely is it that you would recommend our company/product/service to a friend or colleague?”, NPS aimed to quantify word-of-mouth referrals. It eventually became widely used for assessing customer loyalty and satisfaction in various industries. Reichheld and his company, Bain & Company, trademarked the Net Promoter System to distinguish the proper application of NPS from other competing alternatives.
Challenges and Limitations
Despite the wide adoption and apparent success of NPS, it has faced criticism and challenges. One common criticism is that the scoring system, which classifies consumers into three categories: promoters (scores of 9 or 10), passives (7 or 8), and detractors (0 to 6), is overly simplistic. This classification may not capture the nuanced opinions of customers, leading businesses to focus on a single metric while neglecting others that could offer valuable insights.
Some experts worry about the reliability and accuracy of NPS as a predictor of customer loyalty and behavior. The score can be affected by various factors, such as cultural differences, customer personalities, or factors unrelated to the product or service quality. Critics also claim that NPS can be easy to manipulate, leading to a biased view of a company’s performance and misleading decision-making.
The Net Promoter System has also faced challenges in business-to-business (B2B) contexts, where the buyer’s decision-making process is typically more complex and involves multiple stakeholders. Moreover, transactional NPS, which measures customer experiences after specific interactions, may not be as accurate or helpful in determining overall loyalty in B2B settings.
In conclusion, while the Net Promoter Score has been widely adopted and is seen as a useful tool for measuring customer loyalty, several challenges and limitations have been identified that make its application more nuanced and context-specific.
Making Progress with NPS
Net Promoter Score (NPS) is an essential metric for companies to gauge customer loyalty and satisfaction. Calculating NPS is a simple process which involves asking the question “How likely are you to recommend [company/product/service] to a friend or colleague?” on a scale of 0 to 10. The responses are categorized into promoters, passives, and detractors, allowing businesses to determine their overall customer satisfaction and loyalty.
Many Fortune 1000 companies rely on NPS as an essential component of their customer experience strategy. These businesses understand the importance of qualitative feedback in shaping the perception of their brand. By identifying detractors or dissatisfied customers, they can target areas that need improvement and promote positive changes in their customers’ experiences.
To make progress with your NPS, one must focus on both quantitative and qualitative feedback. Increasing response rates is a crucial factor in ensuring a more accurate representation of your customer base. To achieve higher response rates, businesses can use various channels, such as email, phone, or in-app messaging, to collect feedback from their customers. This approach allows companies to receive a broader range of insights and better understand the driving factors behind their customers’ perceptions.
Enhancing the qualitative feedback collected during the NPS process provides valuable insights into the reasons behind customer satisfaction or dissatisfaction. By gathering open-ended comments from promoters, passives, and detractors, companies can delve deeper into specific issues and discover opportunities for improvement or growth. Integrating qualitative feedback will empower businesses to implement data-driven strategies to enhance customer experiences and increase loyalty.
Analyzing NPS data over time provides a clear understanding of progress and areas in need of attention. Comparing current NPS scores against historical data provides a comprehensive view of the effectiveness of implemented strategies and highlights areas that need further improvement. By continuously monitoring and adapting to customer feedback, companies can ensure they are building lasting relationships with their customers and maintaining a competitive edge in their respective industries.
Frequently Asked Questions
How is Net Promoter Score calculated on a 10-point scale?
Net Promoter Score (NPS) is calculated by asking customers the following question: “On a scale from 0 to 10, how likely are you to recommend this product/company to a friend or colleague?” Based on their responses, customers are then categorized as Promoters (9-10), Passives (7-8), or Detractors (0-6). The NPS is calculated using the formula: NPS = (% of Promoters – % of Detractors) 1.
What constitutes a good NPS score?
A good NPS score varies depending on the industry and region, but generally, a score above 0 indicates more customers are promoters of the company than detractors. A score between 0 and 30 can be considered fair, with an NPS of 30 to 70 considered good, and a score above 70 considered excellent 2.
How to calculate NPS on a 1-5 scale?
While NPS is typically calculated on a 10-point scale, it can also be adjusted to a 1-5 scale. To do this, ask customers the same question as before but adjust the response scale accordingly. Then, reassign the categories: Promoters (5), Passives (4), and Detractors (1-3). Use the same NPS formula, but remember that scores calculated on different scales cannot be directly compared.
What are the NPS benchmark standards?
NPS benchmark standards can vary by industry, and it’s important to understand the context in which your company’s NPS score is being evaluated. You can find industry-specific benchmark data from various sources such as Qualtrics XM or Hotjar. This data will help you understand how your NPS score measures up against competitors.
How to create an NPS formula in Excel?
To create an NPS formula in Excel, follow these steps:
- Enter customer responses in a column.
- Use separate columns to categorize responses as Promoters, Passives, or Detractors based on the response value.
- Calculate the number of responses and percentage for each category.
- Subtract the percentage of Detractors from the percentage of Promoters to get your NPS score 3.
How frequently should NPS be calculated?
The frequency of NPS calculations depends on the company’s objectives and customer interaction frequency. For some companies, monthly or quarterly NPS measurements may be sufficient, while others might require daily or weekly calculations. The key is to find a consistent cadence that allows for valuable insights and improvements based on customer feedback 4.