Net Promoter Score (NPS) is a simple yet powerful tool for gauging customer loyalty and identifying opportunities for improvement. This article goes over in-depth of what NPS means and how to interpret its result.
What is Net Promoter Score (NPS)?
NPS is based on one key question:
“How likely are you to recommend our product/service to a friend or colleague?”
Customers respond with a rating between 0 (not at all likely) and 10 (extremely likely). They are then categorized into three groups:
- Promoters (Score 9–10): These are your loyal customers who are highly satisfied, make repeated purchases, and likely to recommend your product to others.
- Passives (Score 7–8): Passives are satisfied but not enthusiastic customers. They’re unlikely to actively promote your offering but won’t actively detract from it either.
- Detractors (Score 0–6): Detractors are dissatisfied customers who may actively discourage others from using your product or service.
Calculating Net Promoter Score
Calculating the score is as simple as subtracting the percentage of detractors from the percentage of promoters.
NPS = % of Promoters — % of Detractors
For example, if you have 30% promoters, 60% passives, and 10% detractors, the resulting score would be 10 (30–10). Thus, the resulting score can range from -100 (if all respondents are detractors) to +100 (if all are promoters).
Absolute vs Relative Net Promoter Score
There are two ways to utilize NPS: the absolute and relative.
Absolute NPS: is the standalone score of your company or product as calculated like above. You can identify the ratio of promoters, passives, and detractors. A positive score means that there are more promoters than detractors.
Relative NPS: compares how your company scores against competitors or industry average. Relative NPS offers a comparative perspective for your company to understand how it’s positioned in the market and identify areas for improvements relative to the competitors.
Which scoring method should I use?
If you have the bandwidth to research other competitors’ NPS, the relative NPS approach will yield much insight with the overall NPS scores across the industry landscape. You want to identify your industry’s average NPS, main competitors’ scores, and see how your company or product stands amongst the competitors.
What is a Good or Bad Net Promoter Score?
Here is how you can interpret the score at a quick glance:
- NPS Below 0: If your NPS is negative, you have more detractors than promoters. This signals the need for immediate attention to address customer concerns.
- NPS Above 0: If your NPS is positive, it indicates that you have more promoters than detractors. This is a good sign, as it means your customer base is growing through referrals.
- NPS Between 0 and 50: While positive, there’s room for improvement in converting more customers into promoters. Focus on enhancing the customer experience to achieve a higher score.
- NPS 50 or Higher is exceptional: It means you have a strong base of loyal customers who actively advocate for your product or service.
What Net Promoter Score Really Means
A single absolute score doesn’t tell much other than the composition of your promoters, passives, and detractors. The true meaning of the score lies relative to the scores of your competitors or key players in your industry as the average score varies across each industry. For example, the average score in B2C retail industry is around in the 60s where as the score in B2B software sits relatively lower in the 40s. Thus, researching the industry average and your competitors scores to benchmark how your product stands is critical in making the most out of the NPS. To learn more, see this recommended article.
What can I do with NPS Results?
- Focus on the qualitative whys: Go beyond the numbers and understand why your customer gave a particular rating. Combining the qualitative data with NPS scoring metrics will help better making sense of the result.
- Recognize areas of improvements: Detractors highlight areas that need attention. Their feedback can help you pinpoint weaknesses in your product. Also, probe questions to understand what it would take to achieve a rating of 10 for customers.
- Compare your score with competitors: Identify how the key players or competitors in your industry are performing. Comparing your score to the industry average and competitor’s will give you a clearer sense of how your product is performing.
- Keep track of the score over time: Regularly survey customers to monitor and benchmark the scores over time. Observe how the composition changes and look for opportunity areas to convert passives to promoters.
NPS is a powerful metric that provides insights into customer loyalty and areas for improvement. When interpreted and acted upon effectively, it can be a driver of growth and customer satisfaction. Keep in mind that while NPS is a valuable tool, it should be part of a broader customer feedback strategy that includes other metrics and qualitative insights to get a comprehensive view of the customer experience.