NPS: an overview
Customer satisfaction and recommendations have an impact on renewals, expansions and acquisition of new clients. The NPS is an essential metric for understanding customer views. It tracks those that are promoters and those that are detractors. In this section, we clearly define what the NPS is and provide insight on why it matters and who should use it.
What is the net promoter score?
The purpose of the net promoter score is to measure the loyalty of customers towards the brand. The NPS can be calculated using one simple question: “On a scale of 0 to 10, how likely are you to recommend the brand?”
Many organisations use the net promoter score to measure their customer loyalty and overall satisfaction. The results are likely to show some groups of customers that are loyal to the brand and may show others that are less attached to it.
Why does the NPS matter?
The NPS metric brings a wealth of value to businesses that use it. For example, it may be used to anticipate the growth of the business. The results will show if relationships with customers are healthy or if they need improvement and in what areas. The net promoter score is used strategically to predict growth but can also bring the following benefits:
- It can create an internal benchmark to track the company’s performance over time.
- It can define the company’s vision and motivate employees to drive customer enthusiasm.
- It can help understand where the organisation should improve and the pain points that need to be worked on.
Knowing your NPS and utilising the information collected in the process is paramount to drive business growth.
Related: Mastering customer acquisition strategies to grow your business
Who uses the NPS?
The net promoter score can be used by various types of businesses, from B2C to B2B organisations. When considering using the NPS, you should ask yourself if the survey will be a transactional exercise or a way to build the relationship further with existing customers. Here is a snapshot of the two approaches:
The transactional approach to the NPS
The transactional NPS aims to understand the immediate buyer experience. Surveys are typically launched right after the purchase or the customer’s touch point and are not subject to follow-up.
The relationship approach to the NPS
The relationship NPS is more qualitative and focusses on the overall sentiment of the customer. It gauges their level of satisfaction holistically. It is common for this type of survey to be launched on a regular basis, for example every three months, to continuously gauge the level of service.
By understanding the differences between these two approaches to the NPS, you can help define which is most adequate for your business.
How to calculate your NPS
When it comes to calculating the NPS or even interpreting the results, one might not know where to start. This section provides you with all the essentials to calculate and understand your NPS, from the formula itself to interpreting the scoring. Keep in mind that the net promoter score is a percentage that shows the proportion of customers who are promoters and the proportion who are detractors. Let’s go into more detail, starting with the formula itself.
The NPS formula
The formula to calculate the NPS is as follows: NPS = % of promoters – % of detractors
Although this calculation is simple, there are some subtleties to consider. For example, respondents that rate 2 or 4 are all detractors. It can therefore be informative to look at the survey in more detail in order to extract valuable information from it.
The calculation below explains this further:
A company performs a survey with 2,500 respondents. The results show the following:
- Promoters: 1,300
- Passive: 800
- Detractors: 400
The first step is to calculate the percentage for each section. Note that passive respondents are not included in the calculation of the NPS. In this example, promoters represent 52% of the total number of respondents, while detractors represent 16%. To get the NPS, you need to subtract the percentage of detractors from the percentage of promoters, that is to say 52% minus 16%. The result of this subtraction is 36% – the NPS score. This number may seem low but this result actually represents great performance. As a general rule, we can say that results from 0 to 30 are good and results above 30 are great. Results that are below zero mean that there is a serious issue that needs to be looked into. Typically, 30% is the benchmark to beat.
Your net promoter score explained
Although the calculation seen in the section above is a great metric, there is more to the net promoter score. The results on the zero to ten scale are great indicators of the client’s position. Here is more insight on how to interpret it.
Promoters
Promoters are clients that responded 9 or 10. They are highly satisfied with the brand and are happy to recommend it to others. These customers are likely to continue purchasing from the brand and remain loyal. Promoters and employees typically have a good relationship and are pleasant for your staff to work with.
Related: The power of customer reviews to help your business grow
The passives
Respondents that have chosen 7 or 8 on the scale from 0 to 10 are referred to as passively satisfied. They are likely to repurchase from the company or to recommend the brand but are less loyal than the promoters.
The detractors
Detractors are unhappy customers and are not profitable in the long term as their criticisms of the brand will diminish the company’s reputation. Detractors respond to the NPS survey with a rating anywhere from 0 to 5.
A step-by-step guide to calculating your NPS
The three steps below outline the actions that need to take place to obtain your NPS.
Step 1: Launch the NPS survey with your customers
The first step when wanting to know your net promoter score is the survey. Launching the survey is a simple process as there is one question, which is: “How likely is it that you would recommend this company to a friend or colleague?”
The way this question is asked makes it simple for the respondents to answer. It is important to send the survey to all customers so that the results are as accurate as possible.
Step 2: Collect the results, analyse them and categorise the data received
Once the results are in, they should be categorised as promoters, detractors and passives. The split between the respondents should be as follows:
- Promoters are customers who rate you 9 or 10
- Detractors are customers who rate you from 0 to 6
- Passives are customers who rate you 7 or 8
This classification is sometimes done automatically using NPS tools.
Step 3: Apply the NPS calculation
At this stage, you have all the information that you need to calculate the NPS. Start by getting the percentage of respondents per category, then move to the calculation itself. Reflect on your results and use them to predict future growth or potential challenges. You can also decide to dig further and get in touch with the detractors or passives to understand their negative experience and address the issue.
Related: A step-by-step guide to creating a business growth plan
Your net promoter score is an important metric and should be considered to understand how the business is performing. The indicator also helps anticipate business growth or overall predictions and is therefore valuable for strategic planning.
