The Net Promoter Score (NPS) is a widely used management tool that can be used to gauge the loyalty of a company's customer relationships. It serves as a key indicator of customer satisfaction and potential for growth, as loyal customers are more likely to make repeat purchases and refer new customers.
What is NPS?
NPS is based on a single question, typically asked to customers: "On a scale of 0 to 10, how likely are you to recommend [Company/Product/Service] to a friend or colleague?" Based on their response, customers are categorized into three groups:
Promoters (Score 9-10): These are loyal enthusiasts who will continue to buy and refer others, fueling growth.
Passives (Score 7-8): These are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
Detractors (Score 0-6): These are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
How is NPS Calculated?
The Net Promoter Score is calculated by subtracting the percentage of Detractors from the percentage of Promoters. Passives are included in the total number of respondents but do not directly factor into the score itself.
The formula is:
NPS = (% Promoters) - (% Detractors)
The score can range from -100 (if every customer is a Detractor) to +100 (if every customer is a Promoter).
Example Calculation:
Let's say you surveyed 150 customers and received the following responses:
Promoters: 90 customers (score 9-10)
Passives: 30 customers (score 7-8)
Detractors: 30 customers (score 0-6)
First, calculate the total number of respondents: 90 + 30 + 30 = 150.
Next, calculate the percentage of Promoters and Detractors:
% Promoters = (90 / 150) * 100 = 60%
% Detractors = (30 / 150) * 100 = 20%
Finally, calculate the NPS:
NPS = 60% – 20% = 40
Using the calculator above, you can quickly input these numbers to verify the result.
Why is NPS Important?
NPS is a powerful metric for several reasons:
Simplicity: It's easy to understand and communicate across an organization.
Actionable Insights: It helps identify areas for improvement by understanding why customers are detractors or passives, and what makes promoters so loyal.
Growth Indicator: Companies with higher NPS scores often demonstrate stronger growth rates.
Benchmarking: It allows you to compare your performance against industry averages and competitors.
Interpreting Your NPS Score
While a higher NPS is always better, what constitutes a "good" score can vary by industry. Generally:
Above 0: Considered "good," meaning you have more Promoters than Detractors.
Above 50: Considered "excellent," indicating strong customer loyalty.
Above 70: Considered "world-class," achieved by very few companies.
It's crucial to track your NPS over time to see trends and measure the impact of your customer experience initiatives. Don't just focus on the number; delve into the qualitative feedback to understand the "why" behind the scores.