What is NPS?
Net Promoter Score is a metric used to measure customer loyalty by indicating how likely they are to recommend the company to someone else, on a scale of one to ten. It is a value between -100 and 100.
Sometimes, an additional metric is also added wherein customers are asked why they would or would not recommend the company. This gives invaluable insights into what is delighting or frustrating the customer at various touchpoints.
How is NPS calculated?
Net Promoter Score is calculated as the difference between the percentage of promoters and the detractors (the ones who give low ratings)- values between 0 to 5.
Promoters are people who rate your company highly. On a scale of 1 to 10, promoters are the ones who score your company anywhere between 8 to 10.
Detractors are customers who score your company less than 5. These are customers who have not had a good experience at a particular touchpoint or sometimes even multiple touchpoints.
People rating the company between 6 to 7 are considered as Passives and are not accounted for in the NPS calculation.
Once the number of promoters and detractors are counted, they should be individually calculated as a percentage of the total respondents. Finally, the difference between their percentages should give the NPS.
Let us consider a survey of 10 people where they are asked to rate your company between 1 – 10. If 7 people rate it above 8 and 3 people rate it below 3, your Net Promoter Score will be 70 – 30 = 40
Net Promoter Score can also be calculated using NPS Calculators which are available on a host of websites.
What is a good NPS score?
The NPS is calculated as a difference between the percentage of promoters and detractors. The score is negative when there are more detractors than promoters. A positive Net Promoter Score indicates that the number of loyal customers is greater than the dissatisfied ones. On the positive side, scores between 20-50 are considered favorable, 50-80 excellent, and above 80 is world-class. Usually, top-notch companies have an NPS of greater than 70.
There are two ways by which a company’s Net Promoter Score score can be interpreted the relative and absolute methods.
The relative method takes the industry standard and benchmarks and compares them with the calculated score. If the company’s NPS score is relatively better than other companies in the industry, it has a good NPS score. If the company’s NPS score is not as good as others than other companies in the industry, we can say it has a bad NPS score.
The absolute method is easier and interprets positive scores (scores greater than 0) as a good score. This is because the company has more promoters than detractors.
It interprets any negative score (scores below 0) as a bad score as the company has more detractors than promoters.
Why does the NPS matter?
Net Promoter Score is an effective measure to identify changes in customer preferences and can help identify causes for customer churn.
It helps build experiences that increase promoters, retain passives, and reduce detractors for your business.
Alternatives to Net Promoter Score
Although NPS is widely used to measure customer loyalty, there are other alternatives to it.
One of them is the Customer Satisfaction Score (CSAT), which measures a customer’s satisfaction from a scale of 1-very dissatisfied to 5- very satisfied. The CSAT is generally not preferred as it is a temporary measure of customer satisfaction.
The Customer Effort Score (CES) measures efforts taken by the customer on a scale of 1- very low effort to 5 – very high effort. This measures how much effort the customer had to put in while interacting with the company at various touchpoints- from buying a product or service to talking to customer service executives.