What Is Net Promoter Score (NPS)?

digiflowz Business Blog Post

[ad_1]

The Gist

Importance of measurement. Net Promoter Score (NPS) is a critical metric for gauging customer loyalty and satisfaction.
NPS calculation. Companies can calculate NPS by looking at the percentage of your brand’s promoters and detractors.
Strategic application. NPS allows brands to pinpoint areas for improvement, foster positive word-of-mouth and drive business growth.

Editor’s Note: This article has been updated on March 4, 2024 to include new data and information. The original content was authored by Dom Nicastro.

In a world where every customer’s opinion can be amplified through social media and online reviews, understanding and measuring customer loyalty has never been more critical. Enter the Net Promoter Score (NPS), a powerful tool in the arsenal of customer experience (CX) professionals. The NPS metric aims to capture the essence of customer relationships with a single, straightforward question.

But what is net promoter score, and why has it become a benchmark in industries ranging from tech giants to local service providers?

What Is Net Promoter Score?

Net Promoter Score is one of the most common customer experience benchmarks for measuring customer loyalty and satisfaction. It asks customers the question: How likely are you to recommend this product/service to someone else? Many organizations and CX pros use the NPS metric in conjunction with Customer Satisfaction Score (CSAT), Customer Effort Score (CES), Customer Lifetime Value (CLV) and Customer Churn Rate.

“The NPS is the most accurate measure of customer satisfaction and the likelihood of recommending a product to friends, colleagues and their professional network,” said Paul Staelin, chief customer officer at Vercel and previously chief customer officer at Trifacta. “Even better, an NPS gives CX professionals a data-driven measurement of the success of our customer engagement and of the product itself.”

Why Use Net Promoter Score?

Net Promoter Score is a benchmark for customer experience, said Staelin. This is especially true for software as a service (SaaS) providers who measure how customers perceive businesses. “In today’s competitive market for enterprise technology organizations especially, entire CX programs are built around improving this metric.”

Some key benefits of using Net Promoter Score include:

Determining your customers’ level of satisfaction with your product or service
Deploying customer experience metrics simply without a big resource and time grab
Using data-driven customer experience feedback to drive action
Sharing your positive feedback publicly with customers and prospects

Related Article: Net Promoter Score: Top 3 Impactful Trends

How to Calculate Net Promoter Score

How is NPS measured? It’s all based on the question: How likely are you to recommend the product/service? The net promoter score survey allows customers to choose a score between 0 and 10, with 0 meaning “not likely at all,” and 10 meaning “very likely.”

The net promoter score scale breaks down what your customers look like based on their chosen NPS scores.

The Net Promoter Score Scale, showing detractors, passives and promoters

Promoters: Answer with a 9 or 10
Passives: Answer with a 7 or 8
Detractors: Answer with a 6 or lower

To calculate your final NPS score, subtract the percentage of detractors from the percentage of promoters:

Promoters Percentage – Detractors Percentage = NPS

For example, if 20% are detractors and 80% are promoters, your NPS score is 60. The best score would be 100, and the worst score would be -100.

What’s a Good Net Promoter Score?

A good NPS score falls above 20%, according to Staelin. “However, for enterprise technology, I believe 30% is world-class since companies buying technology for business services are notoriously demanding.” For example, Trifacta’s NPS falls around 84%, scoring even higher than iPhone’s “famously positive CX,” according to Staelin, which had an NPS of 63.

In order to be a successful enterprise technology solution, create CX programs that will get your NPS much higher, Staelin added. The market is incredibly competitive, so customer retention and continual successful use cases of your product have become more important than ever before “With that in mind, most technology companies aim to have an NPS of 30. We shoot for a score over 50.”

How Does NPS Work? 9 Steps for Deployment

Brands that want to deploy a net promoter score system should follow the steps below:

Choose the right tool. You can use a simple survey platform or more advanced customer experience management software with built-in NPS functionalities.
Determine the delivery method. Decide how you’ll distribute the survey, such as through email, online while interacting with your website or product, via text message, etc.
Design your survey. Keep your survey simple and short. Ensure respondents understand the scale (0 to 10) and which end represents positive feedback. You can also customize the look and feel of the survey to match your company’s branding and increase engagement.
Choose the timing and frequency. Send the survey after a purchase, support interaction or another significant engagement. And be mindful of survey fatigue — space out NPS surveys appropriately to prevent annoyance.
Send the survey. Use your chosen method(s) to distribute the survey. Personalize the invitation to increase response rates and let customers know their feedback is valued.
Analyze the responses. Collect and analyze your data. Beyond calculating the net promoter score, dig into the qualitative feedback to understand the reasons behind the score, which can provide actionable insights for improving your product or service.
Act on the feedback. Use the insights gained from the NPS survey to take corrective action. You can also use the data gathered to engage promoters further, such as through referral programs or user-generated content.
Close the loop. Follow-up with respondents based on their feedback. Thank detractors for their feedback and inform them of steps taken to address their concerns. Acknowledge passives and explore ways to improve their experience, and thank promoters and encourage them to share their positive experiences online.
Monitor and iterate. Regularly measure NPS and monitor changes over time. Use this data to refine your approach, improve customer satisfaction and boost your NPS score.

Related Article: Skewed Metrics: How CX Leaders Should Rethink NPS, CSAT and CES

What Can You Measure Using NPS?

The net promoter score allows you to determine how customers feel about your brand, products or services, which provide valuable insights for your business. Here’s what NPS can help you gauge:

Customer Loyalty and Satisfaction

NPS directly measures how likely your customers are to recommend your product or service to others, serving as a proxy for their loyalty and satisfaction levels. A high NPS score indicates that your customers are not only satisfied but enthusiastic about your offerings, suggesting they’re loyal to your brand.

Customer Sentiment and Perception

The qualitative feedback collected alongside the NPS question can reveal customers’ perceptions and sentiments about your brand, products or services. This feedback can highlight what you’re doing well and areas needing improvement.

Brand Advocacy

NPS identifies your Promoters (score 9-10), who are likely to act as brand advocates. These are customers who not only have a high likelihood of remaining loyal but also may positively influence others by recommending your brand, contributing to organic growth through word-of-mouth.

Risk of Customer Churn

By identifying Detractors (score 0-6), NPS helps you understand the portion of your customer base that is unhappy and at risk of leaving for a competitor. This information is crucial for taking targeted actions to address concerns, improve customer satisfaction and reduce churn.

Effectiveness of Customer Experience Initiatives

Comparing NPS scores over time allows you to measure the impact of customer experience improvements or changes in your product or service. An increasing NPS can indicate that your initiatives are successful in enhancing customer satisfaction and loyalty.

Market Trends and Competitive Benchmarking

When benchmarked against industry standards, your NPS can provide insights into where you stand in the market in terms of customer loyalty. This can inform strategic decisions and help you understand how your customer experience compares to competitors.

Growth Potential

Since NPS is correlated with growth, tracking this metric can give you an idea of your business’s growth potential. A high or improving NPS suggests that your customer base is likely to grow through referrals, whereas a low or declining NPS may signal stagnation or potential decline in your customer base.

Customer Segmentation

Analyzing NPS data can also help you segment your customer base by loyalty levels, enabling personalized marketing strategies, targeted communication and tailored product offerings to different groups (Promoters, Passives, Detractors).

What Is Your Key Driver Analysis for NPS?

If the Net Promoter Score is part of your customer experience program, you need to fully understand what is driving the metric, or your key driver analysis, according to Howard Lax, Ph.D., president of The LAX Group and previously principal director, customer experience consulting at Forsta. The driver analysis will identify, quantify and prioritize the areas which businesses need to improve performance to enhance their overall loyalty scores. This is the factor that drives action, Lax added, brings the metric to life and helps build a stronger CX program.

Why Simple Is Good for Net Promoter Score

The simplicity of the NPS has, in part, given rise to its massive popularity, according to Lax. Apart from “overall satisfaction,” there is no loyalty metric cited and used more frequently than NPS. “This simplicity and popularity is part of the reason that the C-Suite is generally accepting of NPS,” he said. “For board members, senior executives and members of the C-Suite, the NPS provides the promise that all you need to do is ask one question to gauge insight into brand loyalty.”

In recent years there has been a greater understanding of the limitations of NPS, the pros and cons and reasons why it should not be used as the be-all-end-all, according to Lax. The popularity of NPS continues to beg the question of why the score is what it is and how it can be improved.

“There has been wider adoption of questioning NPS and testing multiple metrics to determine which measure best explains or predicts customer behavior and business outcomes,” he said. “Businesses need to carefully examine their business model and focus intently on the ultimate business objective: boosting customer loyalty as a path to improving customer profitability.”

Related Article: 20 Customer Experience Metrics Critical for Your Business

Avoiding Over-Reliance on NPS

“While the Net Promoter Score metric has soared in popularity and offers a simple and straight-forward way to gauge brand loyalty, it is not always the right CX metric to focus on,” Lax said. “Businesses that want to build better customer experiences should never blindly adopt NPS as their holy grail. The best CX metric is that which best explains the customer behaviors you are trying to encourage and the business outcomes you want to achieve.”

Derek Wang, CEO and founder of AI experience analytics platform Stratifyd, cautioned CX teams against over-surveying because they only provide a “limited view of the customer experience.”

According to Lax, the steps for determining the ideal CX metric are simple: