Net promotor score (NPS) – an introduction
NPS is a measure of how likely your customers will recommend you.
It’s used to evaluate and benchmark your business against your competitors as it measures your customer loyalty, which also demonstrates your future growth potential.
What does net promotor score (NPS) mean?
NPS helps businesses measure the quality of their overall service, particularly in relation to their competitors. NPS is measured with a single survey question “On a scale of 0 to 10, how likely are you to recommend us?”
NPS is expressed as a number from -100 to 100.
Customers are usually asked to give a rating between 0 and 10, 10 being the highest. Depending on their response, they fall into one of three categories:
Promoters
These are customers that respond with a score of 9 or 10 and are typically loyal, enthusiastic customers. They’re extremely likely recommend you to others.
Passives
These are customers that respond with a score of 7 or 8 and are somewhat satisfied with your service. However, they’re not happy enough to be considered promoters and won’t recommend you.
Detractors
These are customers that respond with a score of 0 to 6. They’re unhappy customers who are unlikely to buy from you again and may even discourage others from buying from you.
The number of promoters and detractors are used against your total responses which gives an overall net promoter score.
Why is NPS important to measure?
NPS can be used as a predictor of business health and growth potential. When your company’s NPS is high (or higher than the industry average), you know you have a healthy relationship with customers. Your customers are likely to act as evangelists for your brand, fuel word of mouth and generate a positive growth cycle.
Businesses can use NPS to address problem areas, improve customer experience, monitor loyalty trends and grow revenue through referrals and upsells.
NPS can be linked to various parts of your business:
Customers
- Changes in customer preference to your product or services.
- The effectiveness of improving customer experience through reducing friction in website shopping experience or product improvements..
Pricing
- The impact of price changes on customer loyalty.
- The impact of offering discounts or promotions on customer loyalty.
Supply chain & logistics
- Impact of delays in delivery i.e. due to shortages or delays.
Marketing
- The effectiveness of your marketing strategy in building loyal customers.
NPS is relatively easy to calculate and quick for customers to complete – it’s a powerful metric to understand customer satisfaction.
What is a good NPS?
NPS requests can be combined with other questions to collate customer feedback but including too much can impact response rate.
A score of 30 or more could be considered good but it really depends on your industry, how competitors score and the nature or frequency of human touch and relationships. Some well-known brands that demonstrate high NPS include:
- Tesla - 96
- AirBnB - 74
- Amazon - 62
To illustrate the impact industry dependency, airlines average an NPS of about 15 whereas B2B SaaS is in the mid-40s. By contrast, rental company average is 0-5, which is considered good for that industry.
B2B tends to experience higher net promoter scores than B2C businesses.
Seeking additional insight to scoring rationale can provide deeper understanding of your position, so having a dynamic question after a score is a great way to get additional customer insight.
For low customer volume businesses, primarily B2B, following up after a poor score will enable you to understand issues and address them.
What does NPS look like?
How is NPS calculated?
The formula to calculate NPS is:
NPS = % of Promoters - % of Detractors
NPS worked example
If a company sent 120 NPS requests out and received the following, their NPS would be 60, calculated like this:
- 20 non-responses
- 10 responses below a score of 6 (detractors)
- 20 responses 7 or 8 (passives)
- 70 responses 9 or 10 (promoters)
NPS = (70 / 100) – (10 / 100) = 70% - 10% = 60
Conclusion
NPS is an important metric to measures customer satisfaction and loyalty to a brand. It acts as a comparison, whether this is to your previous score, internal segmentation/benchmarking or to competitors. It also enables you to set a target to work towards.
Remember why you are measuring NPS - to measure customer loyalty and ultimately deliver your customers a great experience.
