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.
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:
Calculating the score is as simple as subtracting the percentage of detractors from the percentage of promoters.
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).
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.
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.
Here is how you can interpret the score at a quick glance:
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.
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.