Keeping customers satisfied and loyal is a key aim for businesses everywhere. The belief being the more satisfied and loyal they are, the greater your overall business success.
Until recently, it was more difficult to put a quantifiable figure on the level of customer satisfaction and loyalty. This led to the invention of the Net Promoter Score® (NPS ®) metric.
What does NPS mean?
When it comes to the nps meaning, the nps definition is essentially a measure used to gauge an individual’s customer satisfaction and loyalty towards a company. It’s calculated by asking that customer the following question.
“On a scale from 0 to 10, how likely are you to recommend this product/company to a friend or colleague?” where scores between (0-6) are your NPS detractors, scores between (7-8) NPS passives and scores between (9-10) your NPS promoters.
You can calculate Net Promoter Score with the net promoter score formula. This helps you work out the difference between your proportion of promoters and detractors and generate a score of between -100 and 100.
You can calculate a relatively small dataset by simply subtracting the number of detractors from the number of promoters. This leaves you with a positive or negative number. You would then need to divide that answer by your total number of survey responses and multiply that by 100.
The number you are left with, rounded to the nearest whole number, should be between 100 and –100.
Generally, the higher your score the more desirable it is.
Transactional NPS vs relationship NPS
While it’s important to know what is NPS, it’s also useful to know about the different types of NPS.
There are two types of NPS, to help you better understand customers both at a macro and a micro level.
Relational NPS surveys
At the macro level relational NPS surveys are deployed on a regular basis, such as quarterly or annually. The aim is to get a periodic pulse of your customers and understand how they feel about your company. You can then use the data to check the year-on-year health of customer relationships. It can also provide a benchmark for company success.
Transactional NPS surveys
At the micro level transactional NPS surveys are issued after every interaction a customer has with your company. This could anything such as following an online purchase or support call. They can help you better understand customer satisfaction at a more granular level and provide feedback about very specific topics.
Who invented NPS?
The Net Promoter Score was created in 2003, by Fred Reichheld, a partner at Bain & Company. This was to provide a better way of measuring how well an organisation treats the people whose lives it impacts. It can also help you to measure how well organisations generate loyalty among their customer base.
Interestingly as organisations developed and shared their experiences with Net Promoter Score, NPS evolved into much more than a metric. So, much so, that today some of the best loyalty-leading companies use the Net Promoter System, as a management system to foster a customer-centric approach that helps guide everything they do.
Who uses Net Promoter Score?
There’s no ideal company type that benefits more than others when it comes to using the Net Promoter Score system. This is because it can help any company in any industry build customer loyalty and achieve growth. So much so, that at least two-thirds of the Fortune 1000 use the Net Promoter Score. This includes most or all financial service companies, airlines, telecom companies, retailers, and others.
Ideally, you want to achieve as high an NPS score as you can.
What is considered a good nps score?
It really depends on the methodology you use to calculate NPS.
There are two main methodologies to help measure the strength of your NPS score. The first, the absolute NPS approach, looks to measure how strong your NPS score is regardless of your industry (you can use our online NPS calculator to identify your score). The second relative NPS method, seeks to determine what a good NPS score is with respect to your industry.
Absolute NPS method
At the most basic level any Net Promoter Score, above zero is seen as acceptable, as it implies that you have more promoters than detractors. NPS scores over 50 are viewed as good, with those above 70 viewed as outstanding and rare.
Here’s a useful breakdown of NPS scores, that can help guide you with how well your own business is doing if you measure your performance using the absolute NPS method:
– 100-0. Anything zero or in minus indicates that the majority of people interacting with your product or brand are having a bad experience. They are really unhappy with your company and are likely to be telling others to avoid your goods and services.
1-30. Is an acceptable range to be in as it means you have slightly more promoters than passives and detractors. However, if you’ve scored in this range, it means there’s still many opportunities for you to improve.
31-50. This is the range where most companies tend to reside. A company with scores in this range places value on a quality customer experience and is generally delivering it with a solid group of promoters’ keen to recommend their brand to others.
50-70. Any companies that score in this range are doubling down on customer experience. Some of the most loved brands have an NPS in this range. It means that they have a larger than average group of promoters, who are sharing their positive experiences with their personal networks.
71-100. The Holy Grail of NPS, which is rarely attainable. Businesses scoring in this range are thought to be among the absolute best in their industry.
Relative NPS method
The second way to measure the value of your NPS score is to compare it relative to others in your own industry. Benchmarking in this way, helps you understand your own place in the marketplace.
However, when you choose to benchmark yourself against others, you need to be aware that average scores can vary widely across industries.
For example, some industries are known to deliver less than satisfactory customer experiences, but they continue to thrive despite having low scores. This can happen in uncompetitive markets, where a company with very few rivals provides a critical service. Think of businesses such as utilities and cable providers.
In contrast, NPS is vital for companies in other industries whose very existence could be threatened if they were unable to deliver a high-quality differentiated experience. These companies either operate in highly competitive markets and must compete on providing a differentiated experience, or their core product is literally all about delivering an experience such as a music venue promoter or luxury hotel chain.
To reinforce this point, look at the widely fluctuating average NPS score for different industries in the graph below.
NPS survey best practices
Despite the wide variance of NPS scores, it’s still valuable to turn more customers into avid promoters of your company or brand, no matter what industry you operate in. Ultimately, you can see this with the best performing companies who continually strive to improve their own customer experiences.
However, to get the greatest value from the NPS surveys you issue and your subsequent NPS score, you need to adopt some net promoter score best practices into your processes. This includes having a clear strategy about how, where, when and what information you should be collecting from your customers. Here ares some NPS best practices to think about: