Customer Experience

Net Promoter Score (NPS): What it is, Why it Matters, and How to Calculate it

We’re living in a world where consumer expectations are rising. According to a PWC study, 1 in 3 customers will switch businesses after a single negative experience. This consumer switching is estimated to cost U.S businesses about $136.8 billion per year.

To keep up with the rising demand for better customer experiences, more businesses are now paying attention to customer feedback. And a useful tool used by these customer-centric organizations to collect and make sense of customer feedback is the net promoter score or NPS.

In this article, we’ll explain what NPS is, how to calculate it, and how you can make the most of it improve customer experience in your business. 

What is NPS?

The net promoter score (NPS) is a customer experience metric that measures customer loyalty and satisfaction.

It’s gotten by asking customers a single question:


“On a scale from 0 to 10, how likely are you to recommend our company to a friend or colleague?”

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Based on the responses, your customers are then segmented into three groups:

  • Promoters (9-10): Customers that give you this score are considered loyal to your brand. They love your product, make frequent purchases, and even refer new customers to your business.
  • Passives (7-8): These customers are satisfied with their experience, but they’re not in love with it. Passive customers aren’t loyal and over time some may become promoters or detractors. 
  • Detractors (0-6): These are the unsatisfied customers. Somewhere along the line, they had a terrible experience with your company. Detractors not only churn quickly but they also share their negative experiences with others, driving away potential future sales.

The net promoter score is focused entirely on just promoters and detractors. And this makes sense given that the NPS is designed to help you improve the customer experience. 

So it’s not concerned with monitoring just the “okay” experiences of passive customers. It’s there to measure experiences that are good enough to turn people into loyal promoters and root out those that lead people to become detractors.

With “great” rather than “okay” customer experiences as your yardstick, you can more effectively make changes that have real business impact. 

Here’s why your NPS is so important:

Why your NPS is important

In a 2003 HBR article, business strategist Frederick Reichheld introduced the concept of NPS and wrote that “the only path to profitable growth may lie in a company’s ability to get its loyal customers to become, in effect, its marketing department.”

He had found a strong correlation between a company’s NPS and its growth rate. Simply put, higher NPS scores led to more growth.

And it’s easy to see why, for instance, according to the Temkin Group, promoters, when compared to detractors, are more than:

  • 5x likely to be repeat buyers 
  • 7x as likely to forgive a mistake
  • 9x as likely to try a new offering

Here’s what Bill Macaitis, former CMO of Slack and Zendesk had to say about why the NPS is such an important metric to monitor:

“NPS is a leading indicator of future growth. The larger the number of advocates for the product, the lower the customer acquisition costs for the company, and the more effective the customer success team will be.”

So in essence, higher NPS scores lead to more repeat purchases, lower customer acquisition costs, reduced churn, and faster growth.

Now let’s take a look at the two types of NPS:

Relational vs Transactional NPS

  • Relational NPS: This is the more traditional NPS survey that most of us have encountered. This type of NPS survey is sent at intervals usually monthly, quarterly or annually. It helps stakeholders within the company understand customer sentiment as it applies to the entire company.
  • Transactional NPS: These are sent out along important customer touchpoints to gauge the quality of service delivery. These touchpoints could be after purchasing a product or speaking with a customer service rep. Transactional NPS is used to get more specific feedback on important touchpoints like these.

In essence, relational NPS helps us see the larger picture in terms of how a company is performing customer experience-wise. While transactional NPS lets us track the customer experience at specific customer touchpoints. 

Calculating your net promoter score

After surveying your customers and segmenting them into the three groups based on their responses. All that’s left is simple subtraction.

Your NPS score can range from -100 to 100 and is gotten by subtracting your percentage of detractors from promoters:

NPS = Promoters (%) – Detractors (%)

For example, if I conducted an NPS survey and 10% of my customers are detractors, 50% passives, and 40% promoters. 

My NPS would be:
40 – 10 = 30

Generally, any score above 0 is considered a good NPS because it means that you have more promoters than detractors. An NPS of 50 and above means that you’re doing very well and any score from 70 and above is considered “world-class”.

Note that these are based on global NPS benchmarks across industries and might not reflect scores in your own industry. For this reason, it’s best when setting NPS targets to consult benchmarks in your industry so your goals are more realistic of the business environment you’re in.

NPS-industry-benchmark

If you want to get an idea of how much NPS scores can vary and why it’s important that you use benchmarks in your industry take a look at this diagram:

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You can see how the NPS falls from a high 62 for specialty stores to a -1 for internet service. The only way you can set realistic NPS targets is with benchmarks in your own industry.
Getting the most out of your NPS

Let’s now look at how you can improve your NPS score and boost customer experience at your company:

1. Learn from your promoters and detractors

Knowing your NPS score alone doesn’t help improve the customer experience. Improvements only start to happen when you listen and act on the feedback customers give you. 

For this reason, you should always have followed up questions with your NPS surveys so you get more insight from the response. For example, if someone is a detractor you can learn what they’re most unsatisfied with and see if it’s something that can be remedied. 

The same thing goes for your promoters. Learning why people love your company is valuable feedback that helps you understand where to keep investing in so you can get more promoters. 

2. Get periodic feedback

Your NPS is only as valuable as it is accurate. Since your customers and the business environment you’re in are constantly changing there’s a need to constantly monitor NPS feedback to make sure it’s truly a reflection of current customer sentiment. 

A good frequency for surveying customers for NPS is about once a quarter. But depending on the mechanics of your business it could be much more frequent.

Feel free to customize the frequency to meet your business needs. Take the case of custom engagement rings maker, Taylor & Hart

They send out two NPS surveys to their customers. The first survey is sent an hour after a customer has made a purchase and tracks customer satisfaction at the point of purchase. 

Net-promoter-score-question

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The customer then receives another survey 40 days later. At this point, they’ve had time to receive and use their ring so they can give honest feedback about their experience.

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Using this dual survey method and making the net promoter score a crucial part of their business has allowed Taylor and Hart to have one of the best scores in their industry, with an NPS score that is consistently above 80. 

3. Look for trends in your data

Your NPS can act as a sort of diagnostic tool for your company and the more information you can gather surrounding your results the better your insights will be. 

For example, if you map NPS data with other customer information like geography, cohort, and demography. You could start to see trends that present massive opportunities for improvement.

Here are just a couple of instances:

  • If a fair amount of your detractors come from a certain geographic region it could mean that people in this area are underserved disproportionately. If it’s a retail business it could have something to do with how they’re treated by staff and if you operate online factors like delivery time might be the cause.  
  • If most of your detractors come from just a particular customer segment it could be because people in these groups are poorly onboarded, that support staff has less training on dealing with issues from this segment or simply that your product isn’t optimized for these customers. 

The point here is that watching out for trends related to your NPS is a smart move that can reveal opportunities for massive improvement.

4. Use NPS data across departments

When most people think of NPS, they immediately think of customer support. But NPS goes beyond just support. Once you’ve built a standard operating procedure for collecting customer feedback periodically, your next step should be to get that feedback to key stakeholders department-wide.

Here’s how NPS data can help different departments in an organization:

  • Product: Transactional NPS surveys can help product teams understand the impact their changes are having on the customer experience. Rather than working in a vacuum they can learn and iterate based on the feedback they receive from customers. 
  • Marketing: Once you know what makes your promoters love your product. You can use that in marketing materials, leveraging the value propositions your audience cares the most about
  • Sales: Apart from using feedback gotten from promoters to learn major selling points customers are interested in it. Sales teams can use NPS feedback to upsell happy customers.
  • Support: Customer support teams can use the feedback obtained from NPS surveys to find unhappy customers at risk of churning and assist them in the best way possible.

Conclusion

Customers are demanding more from businesses that serve them than ever before. Any organization that hopes to thrive in this customer-driven landscape has to make customer experience a priority. 

This makes the net promoter score one of the most useful metrics in the company. When used correctly it can be an instrument for collecting and reiterating based on customer feedback. And the benefits of this are clear: more loyal customers and faster growth. 

Arihant is an entrepreneur at heart with a passion for building on-demand SaaS product companies to help businesses grow globally.

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