How NPS Score is Calculated: A Clear Explanation

Net Promoter Score (NPS) is a widely used metric that measures customer loyalty and satisfaction. It is a simple yet powerful tool that helps businesses understand how their customers perceive their brand and how likely they are to recommend it to others. The NPS score is calculated based on a single question that asks customers how likely they are to recommend a product or service to a friend or colleague.

The NPS score is calculated by subtracting the percentage of detractors from the percentage of promoters. Promoters are customers who respond with a score of 9 or 10, while detractors are customers who respond with a score of 0 to 6. The percentage of passives, who respond with a score of 7 or 8, is not used in the calculation. The resulting score ranges from -100 to 100, with higher scores indicating higher customer loyalty and satisfaction.

Understanding NPS

Definition of Net Promoter Score (NPS)

Net Promoter Score (NPS) is a customer loyalty metric that measures the willingness of customers to recommend a company’s products or services to others. It is calculated by asking customers a single question: “On a scale of 0 to 10, how likely are you to recommend this company/product to a friend or colleague?” Customers who respond with a score of 9 or 10 are considered Promoters, those who respond with a score of 7 or 8 are considered Passives, while those who respond with a score of 0 to 6 are considered Detractors.

NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters. The resulting score ranges from -100 to 100. A positive NPS score indicates that a company has more Promoters than Detractors, while a negative NPS score indicates the opposite. A score of zero means that the number of Promoters and Detractors is equal.

History and Origin of NPS

The Net Promoter Score was developed by Fred Reichheld, a partner at Bain -amp; Company, in 2003. It was introduced in his Harvard Business Review article, “The One Number You Need to Grow,” and has since become a widely used metric for measuring customer loyalty and satisfaction.

Reichheld believed that traditional customer satisfaction surveys were too complicated and did not provide actionable insights. He wanted to create a simple metric that could be easily understood by everyone in the organization, from the CEO to the front-line employees.

NPS has since been adopted by many companies across various industries. It is used to measure customer loyalty and satisfaction, as well as to identify areas for improvement. Companies with high NPS scores tend to have more loyal customers, higher retention rates, and higher revenue growth.

In conclusion, Net Promoter Score (NPS) is a simple yet powerful metric that measures customer loyalty and satisfaction. It is calculated by subtracting the percentage of Detractors from the percentage of Promoters and ranges from -100 to 100. NPS was developed by Fred Reichheld in 2003 and has since become a widely used metric for measuring customer loyalty and satisfaction.

The Calculation of NPS

Survey Question Format

The Net Promoter Score (NPS) is calculated based on a single survey question that asks customers to rate their likelihood of recommending a company, product, or service to a friend or colleague. The question is typically phrased as follows:

“On a scale of 0 to 10, how likely are you to recommend [company/product/service] to a friend or colleague?”

Customers are then categorized into three groups based on their responses: Promoters (9-10), Passives (7-8), and Detractors (0-6).

Categorizing Respondents

Promoters are customers who gave a rating of 9 or 10, indicating they are highly likely to recommend the company, product, or service to others. Passives are customers who gave a rating of 7 or 8, indicating they are satisfied but not necessarily loyal or enthusiastic. Detractors are customers who gave a rating of 0 to 6, indicating they are unlikely to recommend the company, product, or service and may even discourage others from using it.

Computing the Score

To calculate the NPS, the percentage of Detractors is subtracted from the percentage of Promoters. Passives are not included in the calculation. The resulting score can range from -100 to +100.

For example, if 50% of respondents are Promoters and 20% are Detractors, the NPS would be 30 (50% – 20% = 30). A positive score indicates that a company has more Promoters than Detractors, while a negative score indicates the opposite.

The NPS is a valuable tool for measuring customer loyalty and satisfaction. By tracking changes in the score over time, companies can identify areas for improvement and take action to increase customer loyalty and retention.

Interpreting NPS Results

Score Ranges and Meanings

Net Promoter Scores range from -100 to +100. A score of 0 means that an equal number of customers are Promoters and Detractors. Scores higher than 0 are generally considered good, and scores above 50 are considered excellent. Scores below 0 are considered poor, and scores below -50 are considered very poor.

The interpretation of NPS scores varies by industry and company. For example, a score of 50 might be considered excellent for a telecommunications company, but average for a luxury hotel. Companies should compare their scores to industry benchmarks and their own historical data to determine whether their score is good or bad.

Benchmarks by Industry

Industry benchmarks provide a point of comparison for companies to evaluate their NPS scores. The following table shows the average NPS scores by industry, according to a study by the Temkin Group:

Companies should keep in mind that these benchmarks are just averages, and that scores can vary widely within an industry. Additionally, benchmarks may not be available for every industry. Companies should use their own historical data and customer feedback to determine what constitutes a good NPS score for their business.

Best Practices for NPS Surveys

NPS surveys are a popular way to measure customer loyalty and satisfaction. However, the success of an NPS survey depends on how well it is designed and executed. Here are some best practices to consider when creating an NPS survey:

Timing and Frequency

It is important to consider the timing and frequency of your NPS survey. Sending the survey too soon after a customer interaction may not provide an accurate reflection of their overall experience. On the other hand, waiting too long may result in customers forgetting the details of their experience.

The frequency of your NPS survey should also be considered. Sending too many surveys can lead to survey fatigue and lower response rates. It is recommended to send NPS surveys on a regular basis, such as once a quarter, to track changes in customer loyalty over time.

Increasing Response Rates

Low response rates can be a challenge when conducting NPS surveys. To increase response rates, consider the following best practices:

• Keep the survey short and easy to understand
• Offer an incentive for completing the survey, such as a discount or entry into a prize draw
• Personalize the survey by including the customer’s name and details of their recent interaction
• Follow up with non-responders to remind them to complete the survey

By following these best practices, you can improve the effectiveness of your NPS survey and gain valuable insights into customer loyalty and satisfaction.

Limitations and Considerations

Cultural Influences on Responses

When calculating the Net Promoter Score (NPS), it is important to consider cultural influences on responses. Different cultures may have different interpretations of what constitutes a “promoter” or a “detractor.” For example, in some cultures, it may be considered impolite to give a low score, even if the customer is dissatisfied. In other cultures, customers may be more likely to give extreme scores, either very high or very low, rather than moderate scores.

To address this limitation, it is important to take into account cultural differences when interpreting the NPS score. Companies may need to adjust their survey questions or scoring system to account for cultural differences. Additionally, companies may need to conduct separate surveys for different regions or countries to get a more accurate understanding of customer satisfaction.

NPS as a Single Metric

Another limitation of the NPS score is that it is a single metric that does not take into account other factors that may be important for measuring customer satisfaction. For example, a customer may give a high NPS score but still have complaints about the product or service. Additionally, the NPS score does not provide information about why customers are satisfied or dissatisfied.

To address this limitation, companies may need to use additional metrics in conjunction with the NPS score to get a more complete understanding of customer satisfaction. For example, companies may use customer satisfaction surveys that ask more detailed questions about specific aspects of the product or service. Companies may also use metrics such as customer retention rates or customer lifetime value to get a more comprehensive understanding of customer satisfaction.

Overall, while the NPS score is a useful metric for measuring customer loyalty, it is important to consider its limitations and use it in conjunction with other metrics to get a more complete understanding of customer satisfaction.

Actionable Insights from NPS

Improving Customer Loyalty

One of the main benefits of calculating the Net Promoter Score (NPS) is the ability to improve customer loyalty. By identifying the customers who are most likely to recommend your business, you can focus your efforts on retaining them and turning them into brand advocates.

To do this, businesses need to analyze the feedback received from the NPS survey and identify the common themes and issues that are causing dissatisfaction among customers. By addressing these issues, businesses can improve customer satisfaction and loyalty, leading to increased retention rates and positive word-of-mouth referrals.

Long-Term Business Growth

Calculating the NPS can also provide insights into long-term business growth. By tracking the NPS over time, businesses can identify trends and patterns in customer satisfaction and loyalty. This information can be used to make strategic decisions about product development, marketing campaigns, and customer service initiatives.

For example, if the NPS is consistently low, it may indicate that the business needs to invest in improving the quality of its products or services. On the other hand, if the NPS is consistently high, it may indicate that the business can focus on expanding its customer base and increasing revenue.

Overall, the NPS provides businesses with valuable insights into customer satisfaction and loyalty, which can be used to improve customer retention, increase positive word-of-mouth referrals, and drive long-term business growth.

Frequently Asked Questions

What is the formula for calculating Net Promoter Score?

The formula for calculating Net Promoter Score (NPS) is to subtract the percentage of detractors from the percentage of promoters. Promoters are those who respond with a score of 9 or 10, while detractors are those who respond with a score of 0 to 6. Passives, who respond with a score of 7 or 8, are excluded from the calculation. The resulting score ranges from -100 to 100.

How can one compute NPS in Excel?

To compute NPS in Excel, one can use the COUNTIF function to count the number of promoters, detractors, and passives, and then use simple arithmetic to calculate the NPS score. Alternatively, one can use a pre-built NPS bankrate piti calculator template available in Excel.

What constitutes a strong Net Promoter Score?

A strong Net Promoter Score varies by industry and company, but a score above 50 is generally considered excellent, while a score below zero is considered poor. A high NPS indicates that a company has a high percentage of promoters and a low percentage of detractors, which is a good indicator of customer loyalty and satisfaction.

How do you measure Net Promoter Score using a 5-point scale?

To measure NPS using a 5-point scale, one can use the following scoring system: 5 = Promoters, 4 = Passives, and 1-3 = Detractors. The NPS is then calculated by subtracting the percentage of detractors from the percentage of promoters.

What steps are involved in calculating NPS value?

The steps involved in calculating NPS value are as follows:

1. Ask customers to rate their likelihood of recommending the company on a scale of 0 to 10.
2. Calculate the percentage of promoters (9-10), passives (7-8), and detractors (0-6).
3. Subtract the percentage of detractors from the percentage of promoters to get the NPS score.

Can you give an example of how to calculate NPS?

For example, if a company surveys 100 customers and receives 50 promoters (scoring 9-10), 30 passives (scoring 7-8), and 20 detractors (scoring 0-6), then the NPS score would be calculated as follows:

1. Percentage of promoters = (50/100) x 100 = 50%
2. Percentage of detractors = (20/100) x 100 = 20%
3. NPS score = 50% – 20% = 30

Thus, the NPS score for this company is 30.