NPS: Customer Loyalty Index

What is NPS

NPS, or Net Promoter Score, is a metric used to measure customer loyalty and satisfaction. It is based on a single question: “How likely are you to recommend our company, product, or service to your friends or colleagues?” Responses are rated on a scale from 0 (not at all likely) to 10 (extremely likely).

Respondents are classified into three groups:

1. Promoters: those who give a rating of 9 or 10. These are loyal and enthusiastic customers likely to continue buying and recommending the company, thus driving growth.
2. Passives: those who rate 7 or 8. These customers are satisfied but not loyal enough to guarantee positive recommendations. They are also more likely to switch to competitors.
3. Detractors: those who rate from 0 to 6. These dissatisfied customers can harm the company’s reputation and growth through negative reviews and discouraging potential clients.

What is NPS used for

NPS is used for various purposes related to customer relationship management, marketing, and strategic planning. Key uses include:

1. Measuring customer satisfaction and loyalty. NPS provides a quick and effective way to gauge how satisfied customers are and how likely they are to recommend the company.
2. Improving service quality. Knowing who your promoters, passives, and detractors are helps identify areas to improve products or services.
3. Performance evaluation and benchmarking. Companies can compare their NPS to industry standards or competitors to assess market competitiveness.
4. Predicting growth. Studies show a strong correlation between high NPS and business growth, as promoters tend to make repeat purchases and referrals.
5. Managing customer relationships. NPS helps identify dissatisfied customers so companies can address their issues and reduce churn.
6. Employee motivation and training. Using NPS as a performance metric can motivate employees to improve service quality and customer engagement.
7. Product development. Feedback collected via NPS offers valuable insights for creating or improving products aligned with customer needs.
8. Risk management. A low NPS can signal early warning signs of customer relationship issues, prompting proactive measures.

How NPS is calculated

The formula for calculating NPS is:

NPS = (% Promoters) − (% Detractors)

Where:

• Promoters are respondents rating 9 or 10, considered loyal customers who actively promote your brand.
• Detractors are respondents rating 0 to 6, who may damage your reputation with negative feedback.
• Passives (ratings 7 and 8) are not included in the NPS calculation but are important for understanding overall satisfaction distribution.

The percentage of Promoters and Detractors is calculated by dividing their count by the total number of respondents and multiplying by 100.

NPS ranges from -100 (all respondents are Detractors) to +100 (all are Promoters). A high positive NPS indicates many promoters and strong customer loyalty, while a low or negative NPS points to customer satisfaction issues and business risks.

Example:

With 100 customer responses: 70 Promoters, 20 Passives, and 10 Detractors:

• % Promoters = (70 / 100) × 100 = 70%
• % Detractors = (10 / 100) × 100 = 10%
• NPS = 70% − 10% = 60

Thus, the NPS is 60, which is considered a very good score indicating high loyalty and satisfaction.

General methodology of NPS surveys

The NPS survey methodology involves several steps and best practices to measure customer loyalty and satisfaction. It helps companies understand how likely customers are to recommend their products or services. Key elements include:

1. Define what you want to measure with NPS, the actions you will take based on results, and whom to survey (e.g., current customers, recent buyers).
2. The core NPS question: “How likely are you to recommend our company/product/service to friends or colleagues?” Answers typically rated 0–10. Optional open-ended questions collect feedback on reasons and improvement suggestions.
3. Distribute surveys through email, websites, apps, or direct contacts, timing them appropriately to the customer journey.
4. Categorize responses into Promoters, Passives, and Detractors. Analyze open comments for insights and improvement areas.
5. Share results internally. Develop and implement action plans to improve products, services, and customer experience based on feedback.
6. Engage Detractors to understand and address their issues; thank Promoters for support.
7. Conduct regular NPS surveys to track changes in satisfaction and loyalty, using insights for continuous improvement.

What is a normal NPS score?

“Normal” NPS varies widely by industry, region, culture, market segment, and product. However, general benchmarks are:

• Negative NPS (-100 to 0): More detractors than promoters; signals serious satisfaction and loyalty problems.
• Low positive NPS (0 to 30): Acceptable in many industries, especially for new companies/products; room for improvement.
• Moderate NPS (30 to 70): Good score showing significant loyal customer base despite some detractors.
• High NPS (70+): Excellent score indicating strong loyalty and satisfaction; typical of industry leaders.

Note these are general guidelines; ideal NPS depends on your specific context. Tracking changes over time and benchmarking against competitors are crucial.

Industry benchmarks help clarify what’s “normal” or “good.” For example, in highly competitive sectors with low customer satisfaction (telecom, airlines), an NPS near 0 can be acceptable, while luxury retail may expect much higher scores.

How to improve NPS

Improving NPS requires a comprehensive approach to enhance satisfaction and loyalty. Strategies include:

1. Integrate customer feedback into product development to enhance quality and features, focusing on what matters most to customers.
2. Make purchasing, support, and customer interactions smooth and convenient. Ensure your support team is well-trained and motivated to deliver excellent service.
3. Maintain regular, meaningful communication across channels. Develop loyalty programs or offers to attract and retain customers.
4. Respond promptly to customer feedback, especially negative, showing you value opinions and are committed to improvement. Resolve issues efficiently to convert detractors into promoters.
5. Innovate products and services to meet current and future customer needs. Stay agile to adapt to changing market demands and preferences.

Improving NPS is an ongoing process requiring monitoring, analysis, and implementation of improvements based on customer feedback, involving all organizational levels.