What Is Net Promoter Score (NPS)?

Have you ever wondered how companies like Apple, Amazon, and Starbucks consistently deliver exceptional customer experiences that foster unwavering loyalty? The secret lies in their ability to measure and improve a critical metric known as the Net Promoter Score (NPS).

In today’s hyper-competitive business landscape, customer satisfaction is no longer enough; companies must strive for customer advocacy and loyalty to thrive. The Net Promoter Score has emerged as a powerful and widely adopted tool for gauging customer sentiment, identifying areas for improvement, and driving growth strategies.

According to a study by Bain & Company, the creators of the NPS system, companies with a higher NPS tend to experience higher revenue growth rates compared to their competitors. Additionally, research by Temkin Group reveals that companies with strong NPS outperform laggards by 86% in terms of customer experience and 58% in customer service.

By understanding and effectively leveraging the Net Promoter Score, businesses can gain valuable insights into customer loyalty, benchmark their performance against industry standards, and implement targeted strategies to foster customer advocacy and drive sustainable growth.

What is Net Promoter Score (NPS)

The Net Promoter Score (NPS) is a widely used market research metric that measures customer loyalty and satisfaction towards a company’s brand, products, or services. It is based on a simple, straightforward question: “How likely are you to recommend our company/product/service to a friend or colleague?”

Customers respond to this question on a 0 to 10 rating scale. Based on their rating, customers are categorized into three groups:

1. Promoters (9-10 rating) – These are loyal enthusiasts who will keep buying and referring others, fueling growth.
2. Passives (7-8 rating) – These are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
3. Detractors (0-6 rating) – These are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

The Net Promoter Score is calculated by subtracting the percentage of Detractors from the percentage of Promoters. It is a powerful and effective metric because it ties customer loyalty to revenue growth. Companies with higher NPS tend to grow at a faster rate compared to competitors with lower scores.

How is the Net Promoter Score calculated?

The Net Promoter Score (NPS) is calculated using a simple formula that takes into account the responses from your customers to the NPS survey question. The calculation involves three steps:

Step 1: Categorize Respondents

Based on the ratings provided by customers on a 0 to 10 scale, categorize them into three groups:

• Promoters (9-10 ratings)
• Passives (7-8 ratings)
• Detractors (0-6 ratings)

Step 2: Calculate the Percentage of Each Group

Determine the percentage of respondents that fall into each category by dividing the number of respondents in that group by the total number of respondents.

Percentage of Promoters = (Number of Promoters / Total Respondents) x 100

Percentage of Passives = (Number of Passives / Total Respondents) x 100

Percentage of Detractors = (Number of Detractors / Total Respondents) x 100

Step 3: Apply the Net Promoter Score Formula

The Net Promoter Score is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

Net Promoter Score = % of Promoters – % of Detractors

The resulting NPS value can range from -100 (if every respondent is a Detractor) to +100 (if every respondent is a Promoter). A positive NPS is generally considered good, while a negative NPS indicates there are more Detractors than Promoters, which can be detrimental to a business’s growth.

The Net Promoter Score formula

The Net Promoter Score (NPS) formula is a straightforward calculation that provides a quantifiable measure of customer loyalty and satisfaction. The formula is as follows:

NPS = % of Promoters – % of Detractors

To better understand this formula, let’s break it down:

% of Promoters

Promoters are customers who give you a rating of 9 or 10 when asked how likely they are to recommend your product/service to others. They are your biggest fans and brand advocates. The percentage of Promoters is calculated by dividing the number of Promoters by the total number of respondents and multiplying by 100.

% of Detractors

Detractors are customers who give you a rating of 0 to 6 on the NPS scale. They are unhappy with your product/service and are at risk of defecting to competitors or spreading negative word-of-mouth. The percentage of Detractors is calculated similarly to Promoters, by dividing the number of Detractors by the total number of respondents and multiplying by 100.

The NPS formula simply subtracts the percentage of Detractors from the percentage of Promoters. This gives you a score ranging from -100 to +100.

A positive NPS is generally considered good, as it means you have more Promoters than Detractors. A negative NPS indicates more unhappy customers than loyal ones, which can hinder growth. However, the ideal NPS score varies across industries and should be benchmarked accordingly.

Net Promoter Score calculation example

To better understand how to calculate the Net Promoter Score (NPS), let’s go through an example:

Suppose a company surveyed 500 customers and received the following ratings:

Ratings of 9-10 (Promoters): 150 customers

Ratings of 7-8 (Passives): 200 customers

Ratings of 0-6 (Detractors): 150 customers

Step 1: Calculate the percentage of each group.

Percentage of Promoters = (150 / 500) x 100 = 30%

Percentage of Passives = (200 / 500) x 100 = 40%

Percentage of Detractors = (150 / 500) x 100 = 30%

Step 2: Apply the Net Promoter Score formula.

NPS = % of Promoters – % of Detractors

NPS = 30% – 30% = 0

Therefore, the company’s Net Promoter Score is 0.

Interpretation:

An NPS of 0 indicates an equal number of Promoters and Detractors. While not a negative score, it suggests there is room for improvement in fostering customer loyalty and satisfaction.

Generally, companies strive for a positive NPS, as it means they have more Promoters (loyal, enthusiastic customers) than Detractors (unhappy customers at risk of churn).

Importance and Benefits of Net Promoter Score

The Net Promoter Score (NPS) has become a widely adopted metric for measuring customer loyalty and satisfaction due to its simplicity and effectiveness. Understanding and tracking your NPS offers several key benefits:

1. Customer Loyalty Indicator The NPS provides a clear indicator of customer loyalty by segmenting customers into Promoters, Passives, and Detractors. A higher percentage of Promoters signifies stronger customer loyalty and advocacy.
2. Revenue and Growth Correlation Numerous studies have shown a direct correlation between a company’s NPS and its revenue growth. Companies with higher NPS tend to experience faster growth compared to competitors with lower scores.
3. Closed-Loop Feedback The NPS survey question allows customers to provide valuable feedback, enabling businesses to understand the “why” behind the scores and identify areas for improvement.
4. Benchmark Performance NPS benchmarks are available for various industries, allowing companies to compare their score with competitors and industry averages, gauging their relative performance.
5. Employee Engagement A high NPS can boost employee morale and engagement, as it reflects positively on the company’s products, services, and customer experience efforts.
6. Cost-Effective Implementing and calculating the NPS is relatively inexpensive compared to other customer satisfaction metrics, making it accessible for businesses of all sizes.
7. Easy to Understand The simplicity of the NPS calculation and the concept of Promoters, Passives, and Detractors make it easy for employees across different departments to understand and rally behind improving the score.

By leveraging the Net Promoter Score, businesses gain valuable insights into customer sentiment, loyalty, and the overall health of their brand. This metric serves as a powerful tool for driving customer-centric strategies, fostering growth, and achieving long-term success.

Different Types of Net Promoter Scores

While the core concept of the Net Promoter Score (NPS) remains the same, there are different variations and types of NPS that businesses can utilize based on their specific needs and goals. Understanding these variations can help companies gain more targeted insights and make informed decisions.

1. Industry-Specific NPS Many industries have established benchmarks for NPS scores, allowing companies to compare their performance against industry averages. For example, the average NPS for the retail industry may differ from that of the technology sector.
2. Relationship NPS This type of NPS measures the overall customer relationship with a brand or company, rather than focusing on a specific product or service. It provides a holistic view of customer loyalty and advocacy.
3. Product NPS Companies can calculate an NPS specifically for individual products or services, enabling them to identify strengths and weaknesses within their portfolio and prioritize improvements accordingly.
4. Transactional NPS Measured immediately after a specific transaction or interaction, such as a purchase or customer service experience, the transactional NPS provides insights into the customer’s sentiment towards that particular touchpoint.
5. Employee NPS Similar to customer NPS, the eNPS measures employee satisfaction and loyalty towards the company they work for, helping organizations understand and improve employee engagement and retention.
6. Account NPS For businesses operating in the B2B space, the account NPS measures the loyalty and satisfaction of key accounts or clients, which can significantly impact revenue and growth.
7. Competitive NPS This variation asks customers to rate their likelihood of recommending a competitor’s product or service, providing valuable insights into how a company stacks up against its competitors in terms of customer advocacy.

How to Improve Your Net Promoter Score

Improving your Net Promoter Score (NPS) is an ongoing process that requires a customer-centric mindset and a commitment to continuous improvement. Here are some strategies and best practices to help boost your NPS:

1. Listen to Customer Feedback The NPS survey provides a platform for customers to share their feedback. Carefully analyze the comments and insights from Promoters, Passives, and Detractors to identify areas of strength and improvement.
2. Close the Feedback Loop Follow up with Detractors promptly, addressing their concerns and implementing solutions. This can turn detractors into Promoters and demonstrate your commitment to customer satisfaction.
3. Enhance Customer Experience Invest in improving the overall customer experience by streamlining processes, offering exceptional customer service, and continuously innovating to meet evolving customer needs.
4. Foster Employee Engagement Engaged and motivated employees are more likely to deliver exceptional service, which can lead to higher customer satisfaction and increased NPS. Prioritize employee training, empowerment, and recognition.
5. Leverage Promoters Encourage Promoters to share their positive experiences through online reviews, testimonials, and referrals. Their advocacy can attract new customers and reinforce brand loyalty.
6. Analyze and Benchmark Regularly track and analyze your NPS over time, identifying trends and patterns. Benchmark your score against industry averages and top performers to set realistic goals and measure progress.
7. Prioritize Customer-Centric Culture Cultivate a customer-centric culture throughout your organization, where every decision and action prioritizes delivering exceptional customer experiences.
8. Continuously Improve Improving your NPS is an ongoing journey. Regularly review your processes, products, and services, and implement changes based on customer feedback and industry best practices.

By consistently implementing these strategies, you can increase customer loyalty, and advocacy, and ultimately, improve your Net Promoter Score, driving sustainable growth and success for your business.

Tools and resources for calculating Net Promoter Score

Calculating and tracking your Net Promoter Score (NPS) can be streamlined with the help of various tools and resources. These tools not only simplify the calculation process but also provide additional features to analyze and leverage your NPS data effectively.

1. Online NPS Calculators Several websites offer free online NPS calculators that allow you to input your survey data and instantly calculate your Net Promoter Score. These calculators often provide visual representations of your score and comparisons to industry benchmarks.
2. Survey Software Many popular survey platforms, such as SurveyMonkey, Qualtrics, and Typeform, have built-in NPS question types and automated NPS calculation capabilities. These platforms also offer advanced features for survey distribution, data analysis, and reporting.
3. Customer Relationship Management (CRM) Systems Leading CRM solutions like Salesforce, HubSpot, and Zoho often integrate NPS tracking and analysis tools, allowing you to connect customer feedback with customer data for more comprehensive insights.
4. Specialized NPS Software There are software tools specifically designed for NPS management, such as Satmetrix, Wootric, and AskNicely. These platforms offer robust features for survey distribution, real-time NPS tracking, closed-loop feedback management, and advanced analytics.
5. Spreadsheet Templates For businesses with smaller survey volumes, spreadsheet templates (e.g., Excel, Google Sheets) can be utilized to manually calculate NPS and maintain records. These templates often include formulas and guidelines for NPS calculation.
6. Open-Source Solutions Several open-source projects, such as Hotjar and Survicate, offer free NPS survey tools and calculation resources, providing cost-effective options for businesses on a tight budget.
7. Industry Benchmarks and Reports Organizations like the Temkin Group, Satmetrix, and the Delighted Benchmark Report provide industry-specific NPS benchmarks and insights, allowing businesses to compare their scores and identify areas for improvement.

Conclusion

The Net Promoter Score (NPS) has proven to be a powerful metric for businesses seeking to understand and improve customer loyalty and advocacy. By regularly calculating and analyzing their NPS, companies can gain valuable insights into customer sentiment, identify areas for improvement, and implement targeted strategies to enhance the overall customer experience.

Leveraging the right tools and resources can streamline the process of calculating and tracking NPS, enabling data-driven decision-making and facilitating continuous improvement efforts. Whether it’s online calculators, survey software, CRM integrations, or specialized NPS management platforms, businesses have a range of options to choose from based on their specific needs and budgets.

Ultimately, a strong NPS not only fosters customer loyalty and advocacy but also contributes to revenue growth and long-term business success. By fostering a customer-centric culture, closing the feedback loop, and continuously improving based on customer insights, businesses can achieve a competitive edge and thrive in today’s dynamic marketplace.

Remember, a high NPS is not just a number; it’s a testament to the strength of your customer relationships and the foundation for sustainable growth and success.

Frequently Asked Questions (FAQs)