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16/01/2021

How to calculate NPS®: The ultimate guide on Net Promoter Score® (2021)

Learn what is NPS® and how to calculate it through this complete guide

In today's fast changing, competitive business environment, customers are flooded with options and, as a result customer expectations are constantly pushed higher. A billion-dollar question bothers companies as never before: “Are we satisfying our customers?”. This is precisely where the use of Net Promoter Score comes in. Read more about the other 2 key Customer Experience metrics in these other RateNow articles: CSAT Score and CEF Score.

Obtaining continuous insights on the experience of your customers and implementing corrective actions is a key pillar of good management practices for any kind of company or organization. It is essential to be clear about our competitive position, to identify the segments of customers who highly or poorly value our company, the moments of truth and what we can improve in order to grow our business.

But ... how do we get there?

With a simple metric that measures the client's tendency to recommend a company or service: the NPS.

What is the Net Promoter Score?


The Net Promoter Score, or NPS, is an indicator developed by Frederick Reicheld, Bain & Company y Satmetrix Systems published in 2003 by the Harvard Business Review.

NPS stands for Net Promoter Score, a metric that measures a customer’s overall satisfaction with the company’s product or service and the customer’s loyalty to the brand.

With a single question, you can measure on the willingness of customers to recommend the company, the product or service. Users rate on a scale from 0 to 10 where with 0 they are unlikely to recommend us whereas the users who rated 10 will definitely recommend us to a friend or family.

It is one of the most powerful and widespread metrics that allows companies to take the pulse of the customer’s emotions towards the business. NPS simplicity and effectiveness to measure satisfaction and loyalty makes it a blockbuster KPI across most customer experience programs.

The science behind Net Promoter Score. Where does NPS comes from?


Before the Net Promoter Score was established customer satisfaction and loyalty was tracked through long and complicated surveys, resulting in low response rates and ambiguous implications which were complicated for operating managers to act on. This led to the invention of The Net Promoter Score in 2003 by Fred Reichheld, a consultant at Bain and Co. who published an article in Harvard Business Review titled “ The One Number You Need to Grow”. According to this approach, he and his team tested several questions to find out which best correlated with the company’s potential for success. Eventually, the “likelihood to recommend” resulted the ultimate question explaining between 20% to 60% of a company’s organic growth rate. The answer to this question formed the basis to calculate Net Promoter Score as a scientific way to quantify satisfaction and loyalty. This is how NPS was born and thrived as the fastest way to provide real-time feedback to track how well the services delight the customers.

Net Promoter Score question


Typically NPS surveys ask just one straightforward question:

“On a scale of 1-10, how likely are you to recommend our business to a friend or colleague?”

According to studies conducted by the creators of the NPS, customers can be grouped into three well - defined categories , each with different behaviors. Each group requires a different approach.

Based on their answer to the NPS satisfaction survey customers may be considered as:

  • Promoters (9-10): They give a score in the range of 9 to 10. They had an experience with the company that, in some way, has enriched their lives. They are loyal customers, who often purchase repeatedly. They recommend and talk about the company with their friends and family and take time to answer surveys, give feedback and comments for improvement. It is essential for you to keep this group enthusiast, since they can be considered the engine of the company and have a significant impact on the motivation of your team and your employees.
  • Passives or Neutrals (7-8): They give a score between 7 and 8.They are satisfied customers but not enthusiastic enough to recommend a company or product to others. Such customers have obtained just what they have paid for. They are not loyal, they do not mention the company in their conversations with friends or family and, although they can repeat the purchase, they are open to switch to a competitor for a better offer. Your goal should be to convert as many of them as possible into promoters.
  • Detractors (0-6): They give a score of 6 or below. They are unhappy customers who are unlikely to recommend a company and won’t purchase the product again. They are dissatisfied with their relationship with the organization, they are not happy with the experience and the treatment received. They do create a bad reputation about the company when talking to their friends or family and imply a cost for the company that will likely receive complaints from them. Your goal should be to solve their problems as much as possible and convert them into promoters, but above all you need to make sure you know what kind of customer you want.


Promoters VS Detractors

These charts will help you differentiate between the two extremes:

" PROMOTERS

  • Easy to become loyal
  • Less sensitive to the price
  • They tend to repeat their purchases more quickly and to be interested in other products, over time they acquire higher priced products, which means they generate more revenues for you.
  • They also generateless costs for you in terms of customer service resources (virtually no complaints are received from them) and require a smaller investment in advertising and marketing
  • Their are responsiblefor the positive word-of-mouth of the company"
 
" DETRACTORS

  • Difficult to convert into loyal customers
  • More sensitive to the price
  • Their average ticket on products or services is lower, they are less interested in your brand
  • They require a greater dedication of customer service resources due to complaints as well as greater investment in marketing and advertising.
  • They hardly talk about your company and if they do, you should be worried They represent between 80-90% of the negative word-of-mouth effect. Be aware that 1 negative comment is compensated with 3 to 10 positive comments"
 

The importance of NPS


As per Nielsen research, 92% of people trust recommendations from friends and family over any other type of advertising.
According to Forbes, Word of mouth is the most important form of marketing. 
Due to the rising power of customers, consumers are empowered to share their opinions, good or bad, and it's more important than ever to predict their sentiment over a brand. Since the acquisition of new customers is directly related to the amount of recommendations, it is vital for an organization to gather feedback to identify the people who claim they will endorse the brand. On the other side, companies need to ponder ways to resolve the negative experiences in order to avoid them to be shared with others. In conclusion, companies need to be mindful of their NPS.
A company's Net Promoter Score is a good indicator of its future growth. As we will see further on, NPS is not only a glimpse of customer sentiment, since its outcome can help CX leaders to understand where to act to improve customer experience, enhance brand loyalty and reduce customer churn.
Now that we know the basic NPS question we must determine how to formulate it.

Where should NPS question be placed?


In most cases, the NPS question is placed directly on the company's own website, for example at the checkout or sent as a link via email after the experience has occurred. Should there be an additional question or possibly an open text field in which direct comments can be entered?
By offering an open text field in addition to the rating scale, your customers can provide exact information about why they chose this note. This direct feedback is especially useful in case of low NPS, since it allows you to know immediately what needs to be worked on to improve customer satisfaction.

How often should NPS be asked?


One of the crucial points to the implementations of Net Promoter Score strategy is “how often” to send out the surveys. Keep in mind, not to send too often and not leave too much time between the intervals. Because the important aspect is to understand the metric´s progress over time. Depending on the business needs, it should be a standard practice to administer the surveys quarterly.
In addition, negative comments should preferably be addressed within 24 hours. This "closing the loop" process is specifically designed for critics who feel that their concerns are being taken seriously. In the best of cases, their satisfaction with the company may turn positive again. This is how detractors become promoters.

How to calculate NPS?


The Net Promoter Score is calculated by subtracting the percentage of detractors from that of promoters. Passives are not taken into account to find out the overall NPS.

NPS = % promoters – % detractors

This number can range from -100 to 100 and indicates customer loyalty towards the brand. By measuring this score one can identify customer experience weak points that need to be improved which can be performed by asking the right questions, at the right time and to the right people.

Net Promoter Score formula



Net Promoter Score = (Number of Promoter Scores/Total Number of Respondents) - (Number of Detractor Scores/Total Number of Respondents)

For example, we have collected 100 responses to the NPS survey, and below are the results.

  • 70 customers gave 9 or 10 ratings (Promoters). They are very satisfied customers and hence loyal to the brand. So they are willing to buy more and recommend it.
  • 20 customers gave 7 or 8 ratings (Passives). They are satisfied but not loyal customers, so they might switch to the competitor in future.
  • 10 customers gave 0 to 6 ratings (Detractors). They are dissatisfied customers who might spread negative word of mouth.


To calculate the percentage of promoters, we will use the below formula:

% of Promoters = (Number of promoters/ Number of respondents) x 100

Similarly, the percentage of Detractors can be calculated.

In the above example,
% of Promoters = 70/100 x 100 = 70%
% of Detractors = 10/100 x 100 = 10%
Finally, after subtracting the percentage of Detractors from Promoters will give Net Promoter Score.

70% - 10% = 60%


What is a good NPS Score


According to the global NPS standards, a score that is above zero would be an indication of a good score and the number of promoters are more than detractors. If the score is above 30, there are more happy customers than unhappy ones and one is surely on the right track. Well, a score of 70 and corresponds to excellence in Customer Experience. A score below zero, should be alarming and requires imminent steps to improve the Customer Experience.

Net Promoter Score by industry: NPS benchmarks


“What should my Net Promoter Score® be?” Simple question, complex answer. NPS® can vary by industry, region, or characteristics of your customers like age, income level, or time with your company.

To gain the competitive advantage, it is worthwhile to act and improve the NPS score. Here below a worldwide NPS industry benchmark from 2018:

• Customer satisfaction: NPS by industry worldwide 2018 | Statista


How to improve NPS


  1. Follow-up your detractors - The opinions of detractors should not be neglected and it’s of utmost importance to delve into the reasons for their negative experiences. Furthermore it is a good way to retain them and convert them into future promoters. Consulting the detractors and trying to improve their negative customer experience can be the base of a solid improvement program.
  2. Focus on Promoters - Promoters are the brand ambassadors so their feedback is very valuable and shouldn’t be ignored. According to Forbes  acquiring a new customer is 5 times more expensive than retaining a current one. Hence, it is important not to forget to nurture the promoters by offering rewards to them such as loyalty cards, discounts, limited editions or exclusive products.
  3. Connect with Passives (or Neutrals) - They don’t stand out for their brand loyalty nor they are particularly against itso the key objective should be to pull them into the promoter range which in turn will increase NPS. In case they are overlooked, they will walk away sooner rather than later. Ask them questions and highlight the sheer quality of service which makes the product or service stand out from the crowd.
  4. Train the team - Having better customer service and focusing is surely one of the ways to improve the score.
  5. Persistent and wary approach - By valuing both the employees and customers, companies can improve the score even if it's favourable. It is important that every customer feels valued by personalising the interactions and ensuring their opinions are being listened to. Having a flexible approach and modifying it according to time and situation by being committed to customers feedback is the best way for a customer-centric company.


Advantages(Pros) of Net Promoter Score


  1. NPS is intuitive - An assessment from 0 to 10 is easily related to a typical grade system. A 9 or 10 represent an outstanding result; 7 or 8, a pretty good results and 6 or less signal the need for improvement.
  2. NPS is easy to implement - It is a trouble-free approach because its tracking only requires the implementation of just one close-ended question. Although it is recommendable to ask a second open-ended question able to provide more qualitative feedback.
  3. NPS provides honest feedback - Customers are asked whether they would “recommend” the product to their friends or relatives implying a specific personal effort. The theory behind the methodology affirms that this extra effort makes them think harder and provide more candid feedback. The likelihood of recommending might be a better measurement than simple like/dislike questions or a measurement of satisfaction, because it asks the respondent to make a commitment to future behavior.
  4. NPS forecasts future business growth - It is one of the ideal metrics to measure customer loyalty and to assess the health of the brand and overall customer satisfaction. According to Bain and Co. companies which are at the top of their industries in NPS Scores for 3 or more years, grow revenue roughly 2.5 times faster than their industry peers and deliver 2 to 5 times the shareholder returns over the next 10 years.
  5. NPS allows to benchmark against competitors - It is universally implemented, so it is easier to benchmark competitors and use it to monitor progress. At a company level, it is useful to compare the scores of the different departments or locations. Leading companies like Apple, American Express or General Electric have adopted the NPS standard, making it easier to benchmark against the industry NPS. Such metric is actually a reference standard for comparing different companies as it is a reliable indicator of the business performance.
  6. NPS allows to track business performance over time - If followed by a follow-up question, it helps in identifying the seasonal trends and how that affected the customer experience. Hence, it provides insight into the reason why the customers would or would not recommend a brand.
  7. NPS classifies customers into categories - Companies can categorise the customers into Promoters, Passives and Detractors, which makes it different from other metrics as this quantitative data helps to assign someone to follow-up accordingly simplifying the process.


Disadvantages (Cons) of Net Promoter Score


  1. It can be not very specific and clear - With only one open ended question, it's hard to determine the exact cause of negative feedback. It offers no way to communicate the area which has gone wrong and needs to be addressed. To overcome this problem, it is recommended to follow-up with an open ended question asking for more specific improvement measures.
  2. It requires specific action plans to improve the future performance - It's one of the best metrics to gauge the brand loyalty and future business performance but, alone, it doesn't help to know the action plan that needs to be taken. One needs to make sure how to deal with the weak areas to make NPS more relevant. Having no process in place and without action being taken place afterwards makes the whole process of survey futile. Thereupon, it provides limited insight on how to interpret findings. It calls for a follow-up plan with detailed surveys to pinpoint to address the issue.


On a final note

Business sustainability relies on satisfied customers. Because satisfied customers come back (increasing frequency), don´t leave (reducing the churn rate) and promoters are able to bring new customers through word-of-mouth (increasing the customer base). NPS surveys are the valuable source of insights since the gathered data helps to identify key areas of improvement. So that companies can re-evaluate processes, products or services and take the necessary course of action to improve deficient touchpoints. Last but not least, it is not to be forgotten that all negative opinions need to be addressed with resilience and taken as an opportunity to improve the business.

Do you know how many of your customers are "promoters" and speak highly of your brand? What about the number of detractors? Compare yourself with an industry benchmark to ascertain whether you are above or below similar companies or institutions.

Choosing the right partner to help you implement your Customer Experience Program is as important as to know the theory behind it. Why should you consider Ratenow as a partner in its implementation?

  1. Ratenow has years of experience in the operativization of Voice of the customer programs for small and large businesses.
  2. Our platform, Ratenow Analytics is built to give you actionable information for your business decisions.
  3. We can provide you with country and industry specific benchmarks.
  4. We provide only customized solutions

Do not hesitate to 
get in contact with us. We are eager to know about your project and explain how we can help.
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