What is Net Promoter Score(NPS)?
Introduction
Net Promoter Score(NPS), measures customer experience and is one of the core metrics for customer experience management programs today. NPS ratings are calculated using a questionnaire, asking customers how likely they are to recommend your product or service to others on a scale of 0-10. The resulting NPS rating is expressed as a number between -100 and +100, with higher scores indicating better performance and customer loyalty.
How is NPS calculated?
To establish the Net Promoter Score, the first step is to ask customers a question like:
On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?
Customers can rate the likelihood of recommending your company/product/service with 0 indicating they will not recommend, and 10 indicating they are highly likely to recommend. The responses are then categorized into three groups to calculate the NPS score.
Promoters
Customers who give a rating of 9 or 10 are labeled as "Promoters", since they are more likely to recommend your product or service to a friend or colleague. Promoters are considered loyal and enthusiastic customers, and they are more likely to remain customers and increase their purchases over time than other customers.
Passives
Customers who give a rating of 7 or 8 are known as "Passives". They are considered to be "passively satisfied" customers who are neither enthusiastic nor unhappy with your product or service. They are satisfied with their experience but not to the extent that they would actively recommend your product or service to others.
Detractors
Customers who give a rating of 0 to 6 are referred to as "Detractors". These customers are unhappy and dissatisfied with your product or service. They are unlikely to make another purchase from you and may actively discourage others from doing business with you by sharing negative feedback about their experience.
To calculate of NPS score, one simply subtract the percentage of detractors from the percentage of promoters. For example, say that we have 33 % detractors (score 0 to 6), 48 % Passives (score 7 to 8) and 19 % as Promoters (score 9 to 10). Then the NPS would be calculated as follows: 19 % - 33% = -14 NPS
How should you interpret Net Promoter Score(NPS)?
rom the definition of NPS, one can see it is always a value between -100 and +100. A negative score indicates that the number of detractors is higher than the number of promoters, while a positive score indicates the opposite. Generally, a positive NPS score is considered good, as it implies that there are more promoters than detractors. However, to fully understand the score, it is important to benchmark it against the industry average, as NPS scores can vary significantly between different industries. Companies that have excellent NPS scores typically have scores of 70 or higher.
However, it's important to note that the benefits of NPS are not always linear, and there may be a tipping point where a company can receive maximum benefit. Rather than focusing on whether a particular NPS is good or bad, it's more important to understand why customers gave that rating. For example, a low NPS score may not necessarily mean that a company should focus on retaining its current customer base, especially if the services provided do not meet their needs. Instead, it may be more effective to focus on acquiring new customers who are more likely to provide a higher NPS.
However, it's important to note that the benefits of NPS are not always linear, and there may be a tipping point where a company can receive maximum benefit. Rather than focusing on whether a particular NPS is good or bad, it's more important to understand why customers gave that rating. For example, a low NPS score may not necessarily mean that a company should focus on retaining its current customer base, especially if the services provided do not meet their needs. Instead, it may be more effective to focus on acquiring new customers who are more likely to provide a higher NPS.
What are the potential uses of your NPS score?
Your NPS score serves as a general measure that allows you to track overall progress and improvements in your product, service, or organization. However, there are many factors that influence the score. By analyzing data points such as Average Handling Time, First Call Resolution, or feedback on traits like politeness or helpfulness, you can better understand what drives your NPS score.
Using Holistic Business Models (HBM) one can reveal how big the contribution the various drivers have on your NPS score, allowing you to focus on the areas that need the most improvement. By layering customer churn data with customer experience metrics like NPS, you can predict when a customer is likely to cancel your service, and then create a customer churn model using tools such as Alviss AI to identify at-risk customers and arrange for follow-up by your customer care team. The more data you collect and analyze alongside your NPS score, the better you'll understand what drives your customer experience and can prioritize your improvements to have the most significant impact.
Using Holistic Business Models (HBM) one can reveal how big the contribution the various drivers have on your NPS score, allowing you to focus on the areas that need the most improvement. By layering customer churn data with customer experience metrics like NPS, you can predict when a customer is likely to cancel your service, and then create a customer churn model using tools such as Alviss AI to identify at-risk customers and arrange for follow-up by your customer care team. The more data you collect and analyze alongside your NPS score, the better you'll understand what drives your customer experience and can prioritize your improvements to have the most significant impact.
Johan Gudmundsson
CTO, Co-Founder
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