Along with CSAT and CES, NPS is one of the widely popular metrics that businesses currently use to measure customer satisfaction.
What is NPS?
Short for Net Promoter Score, NPS helps provide a simple and standardized way to measure customer satisfaction and loyalty, allowing businesses to track changes in customer sentiment over time.
The NPS score is calculated based on a single question
"On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?"
Based on their responses, customers are categorized into three groups:
- Promoters (score 9-10): Customers are highly satisfied with the company's products or services and are likely to recommend them to others. Promoters are valuable to a business because they are loyal, repeat customers who are more likely to spend more on the company's products or services.
- Passives (score 7-8): Customers are satisfied with the company's products or services, but not to the extent that they would actively recommend it to others. Passives are somewhat indifferent toward the company and may be easily swayed by competitors or changes in the market.
- Detractors (score 0-6): Customers are dissatisfied with the company's products or services and are likely to share their negative experiences with others
The NPS score is then calculated by subtracting the percentage of Detractors from the percentage of Promoters. The resulting score can range from -100 (if all respondents are Detractors) to +100 (if all respondents are Promoters).
An NPS of -44.12 means that detractors take up the majority of your business
[Source: Filum’s Dynamic Feedback]
Relational NPS (rNPS) and transactional NPS (tNPS)
There are two main types of NPS: relational NPS and transactional NPS.
Relational NPS is used to measure overall customer satisfaction with a company or brand over a long period of time, usually at least six months. This is usually used to determine the overall health of your customers year-over-year and get a good overview of your customers.
Transactional NPS, on the other hand, is used to measure customer satisfaction with a specific transaction or interaction, such as a purchase, customer service call, or website visit. It asks customers to rate how likely they are to recommend the company based on that particular experience, which could be useful to evaluate the performance of recent initiatives.
While both types of NPS can provide valuable insights into customer satisfaction and loyalty, they are used for different purposes. Relational NPS provides a more comprehensive picture of overall customer satisfaction with a company or brand, while transactional NPS provides feedback on specific interactions or experiences.
Why is NPS important?
There is a strong correlation between NPS and revenue growth. Several studies have shown that businesses with higher NPS scores tend to have higher revenue growth rates compared to those with lower scores. According to the London School of Economics, for example, an average NPS increase by 7 points correlates to a 1% growth in revenue.
For businesses, NPS is also one of the most popular metrics because of its simplicity, actionability, and predictability. It highly correlates with future customer behavior, such as repeat purchases and referrals, which makes it a valuable tool for forecasting business growth and success.
NPS is the most popular metric for businesses
NPS can also help you continually improve your customer experiences. For example, NPS score can help identify your most loyal customers (promoters) and then you can reach out to them for testimonials, referrals, or reviews. Additionally, you can also use the feedback from detractors to address areas of concern and improve their customer experience.
By tracking NPS over time, you can see how your efforts to improve customer experience are impacting customer loyalty and satisfaction. If the NPS score is increasing over time, it indicates that your business is making progress towards improving the customer experience and increasing customer loyalty. If the NPS score is decreasing, it is a sign that there needs to be action to improve customer satisfaction and loyalty.
How to create an NPS survey
There are several steps to creating an NPS survey, with the following being the most important ones:
- Determine your goals: Decide what you want to achieve with your NPS survey. Do you want to measure overall customer satisfaction, identify areas for improvement, or track changes over time?
- Identify your Audience: Determine who you want to survey. Will you be surveying all customers, a specific segment of customers, or a random sample of customers?
- Create your questions: Your NPS survey should include two main questions:
"How likely are you to recommend our company/product/service to a friend or colleague?" (This is the main NPS question)
“What is the primary reason for your score?” (An open-ended question that allows customers to provide additional feedback)
Additionally, you can also follow it up with more specific questions such as:
“How would you rate your overall satisfaction with our company/product/service?” (A follow-up question that can provide additional insight into customer satisfaction)
“Is there anything you would like to see improved in our product/service?” (Provide specific feedback on areas for improvement)
- Send out the surveys: once you’ve had the questions ready, send out the survey in whichever channel of your choice. It could be an in-the-moment website pop-up that visitors can see after an experience, or an email survey sent after the customer has had time with your service/product, which might help with developing a clearer sense of whether or not they would like to recommend your product/service
How to calculate NPS
Based on the results, you can work on calculating your NPS score by subtracting the percentage of Detractors from the percentage of Promoters. For example, if 50% of respondents are Promoters and 20% are Detractors, the NPS score would be 50 - 20 = 30%.
When should you use NPS?
NPS is quite a flexible metric as there are various use cases where you can utilize and use it to the best of your advantage. Here are a few of them:
- To identify areas for improvement: By analyzing the responses of Promoters, Passives, and Detractors, businesses can identify areas where they need to improve the customer experience. For example, if Detractors are consistently citing long wait times as a reason for their dissatisfaction, the business can take action to reduce wait times.
- To prioritize customer retention efforts: NPS can also be used to prioritize efforts to retain existing customers. Since it is generally less expensive to retain existing customers than to acquire new ones, businesses can use NPS to identify customers who are at risk of leaving and take action to retain them.
- To monitor changes: By tracking NPS scores over time, businesses can monitor changes in customer loyalty and satisfaction and identify areas for improvement.
It is important to note that NPS surveys should not be the only tool used to measure customer loyalty and satisfaction. It should be used in conjunction with other customer feedback tools such as customer surveys, feedback forms, and customer reviews to get a complete picture of the customer experience.
What’s the ideal NPS score
There is no universal "ideal" NPS that applies to all businesses or industries, as the ideal score can vary depending on factors such as the type of business, the industry, and the competitive landscape. However, a positive NPS score (above 0) indicates that a business has more promoters than detractors, which is generally considered a good indication of customer loyalty and satisfaction.
In general, an NPS score of 50 or higher is considered excellent, while a score of 30-50 is considered good. A score of 0-30 is considered average, while a negative score indicates that there are more detractors than promoters, which may indicate issues with customer satisfaction and loyalty.
Even the big ones (such as Apple’s iPhone with a score of 43) don’t really have that good of an NPS so this is something that you should use in conjunction with other metrics to get a clearer picture of what you need to be improving.
Conclusion
Overall, NPS is a valuable metric that you need to be actively tracking as it helps make data-driven decisions to improve customer loyalty and satisfaction, which can ultimately lead to increased customer retention, revenue growth, and long-term business success.
In case you're looking to get started with your CXM (customer experience management) strategies, check out our free guide which goes into great detail about how a customer experience management framework is necessary for sustainable growth, better customer loyalty, and excellent customer experiences.
