What is NPS: Formula and real applications for your company

The Net Promoter Score (NPS) is an essential metric for understanding customer satisfaction and loyalty. Therefore, if you have a company, work in marketing or sales, or simply want to know more about how to achieve business success, you should pay attention to this indicator.

In this article, we tell you what NPS is and how to effectively measure customer loyalty to your brand, product or service. And we also tell you how to calculate and integrate this indicator into your Customer Experience (CX) strategy.

What is the Net Promoter Score (NPS)?

The NPS is a tool that measures customer satisfaction and also customer loyalty. And the first company to reference this metric was Fred Reichheld, Bain & Company, in an article entitled 'The One Number You Need to Grow' and published in Harvard Business Review.

Since then, NPS has become a key indicator for evaluating customer satisfaction and loyalty.

Ok, but how do I calculate and implement it in my business processes? Don't worry, we're going to do it.

How is NPS calculated?

The NPS revolves around a key question: “On a scale of 0 to 10, how likely are you to recommend our products/services to a friend or colleague?” The answers obtained to this simple but powerful question will allow you to classify your customers into three different categories:

1. Promoters (score 9-10): These are highly satisfied customers who are likely to recommend your company, product or service to others. This will ultimately drive the organic growth of your brand.
2. Passives (score 7-8): Satisfied customers but not enthusiastic enough to be considered promoters. These types of customers are not harmful, but their loyalty is not guaranteed and they don't provide you with as much value as the promoters.
3. Detractors (score 0-6): These customers are dissatisfied and can damage the brand through negative feedback or by opting for the competition. You should avoid generating these types of customers.

NPS calculation

‍

However, to get the NPS, you must subtract the percentage of Detractors from the percentage of Promoters. The formula is:

NPS = (Promoters — Detractors)/Total Respondents

For example, if 50% of the respondents are Promoters and 20% are Detractors, the NPS would be 30 (50% - 20%)/Total of respondents.

All right, and how do I interpret this? Easy: A positive NPS is good and an NPS above 50 is considered excellent. But let's dive deeper into this topic.

Interpretation of the NPS

The interpretation of the NPS goes beyond a simple number. A high number of Promoters indicates a loyal and satisfied customer base, suggesting a strong relationship with customers and potential for growth through recommendations.

On the other hand, a high number of Detractors point to problems in the customer experience. And this must be addressed by companies to avoid customer base erosion and reputational damage.

Finally, Liabilities represent an opportunity for improvement, since turning them into Promoters can be a strategic objective for your company.

In a nutshell, understanding NPS and its impact is essential for any company looking to strengthen its relationship with customers. And that's because NPS provides a solid foundation for developing customer-focused strategies and improving overall satisfaction and loyalty.

Pros and Cons of Using NPS

While NPS is renowned for its simplicity and effectiveness, it also has limitations. In this regard, it's important to understand the pros and cons of this metric. We reviewed this topic in depth:

Pros of the NPS

1. Simplicity: Its single-question format makes it easy to implement and analyze. Companies like Apple and Amazon use it because of its ability to quickly collect and understand data.
2. Industry standard: As a widely recognized and used metric, it allows for meaningful comparisons between companies and over time.
3. Growth predictor: High NPS is often correlated with organic growth and customer retention. Companies like Netflix have demonstrated how high NPS aligns with high subscriber growth.

Cons of NPS

1. Lack of detail: Doesn't provide specific information about problems or areas for improvement. For example, a telecommunications company with a low NPS may not know if the problem is with customer service, signal quality, or pricing.
2. Cultural sensitivity: Perception of the scale may vary depending on culture. In some cultures, giving a maximum rating is less common, which can bias results.
3. It's not an exhaustive indicator: It doesn't cover every aspect of the customer experience. Companies such as Starbucks have complemented this indicator with other measures to obtain a more complete view of the customer experience.

How to properly implement NPS and common challenges

If you've come this far, you're probably wondering how to properly implement this metric in your company.

The truth is that implementing NPS requires a strategic approach and can be somewhat complex for companies that have never done so. The good news is that you can rely on some tips for doing so.

To implement it properly, you can follow these tips:

1. Integration with other data: Combining it with other metrics and qualitative feedback can provide you with a more complete view. For example, Dell combines NPS with detailed customer feedback analysis for deeper insights.
2. Frequency and timing of the survey: Deciding when and how often to take the survey is crucial. E-commerce companies like Zappos use NPS after every key customer interaction to obtain relevant and timely data.
3. Monitoring and action: It's not enough to just collect data; it's essential to act on them. An example is JetBlue, which uses NPS data to make specific changes to its service and improve the customer experience.

By following these tips, you can successfully implement this indicator. However, that doesn't mean there won't be challenges in implementing it. Some of the most common are:

1. Low response rate: This can lead to non-representative data. To address this, it's important to encourage customers to participate in the survey.
2. Overdependence on the NPS: Relying solely on the NPS can lead to limited vision. Therefore, it is vital to use it as part of a larger set of measurement tools.

Integrating NPS into the CX Strategy

Finally, we want to talk to you about the importance of integrating NPS into a Strategy of Customer Experience (CX) more robust. This is because the NPS should be seen as part of a larger system that includes the collection of customer feedback through different points of contact.

For example, a technology company can use NPS in combination with usability and support metrics to obtain a holistic view of the customer experience.

On the other hand, the NPS must be aligned with the objectives of the companies. For example, if a hotel chain aims to increase customer retention, NPS can be a key indicator for measuring the success of loyalty initiatives.

You should also use NPS to understand the needs of your different customer segments. For example, an online retailer may discover that younger customers have a lower NPS, which could lead to specific engagement strategies for this demographic.

In short, NPS is a powerful metric that will help you know how satisfied your customers are and their level of loyalty. However, this indicator alone will not allow you to improve your customer experience. To achieve this, you must devise and execute a more robust and professional CX Strategy adapted to your business.

If you want to know more about this topic or are ready to improve your Customer Experience, you can contact us. We are experts in Customer Experience and are ready to help.