I want to provide a simple guide to break down what Net Promoter Score is, the formula to calculate your score and why you need to use it for your business. This article will help you understand how Net Promoter Score (NPS) informs you of your customers likelihood of referring other customers to your business. These word of mouth referrals, whether offline or on, are almost always your best source for new business.
Net Promoter Score can can be a tricky business metric to get a handle on. Maybe it’s the 200 point scale or it’s the 0-10 rating scale it’s formed from … and yes you have to have the zero in the scale. But I want to try and solve all of that today and help you see NPS clearly and how valuable it can be to any type of business.
What Is Net Promoter Score?
NPS, more than just a data point, is a process to tell you how customers feel about your business. If you, as the business owner, are asked what customers think of your business, you might be only able to reply with “They think it’s pretty good … I think.”
With NPS you can get a better handle on how customers feel about their experience with you and how likely they are to tell others about your business. Our own Mike Blumenthal refers to NPS as your “word of mouth index“.
The NPS survey consists of asking your customers just one question, “How likely are you to refer a friend or colleague to our business?”. The customer answers this questions by using a 0-10 point scale, with 10 being very likely to refer you and 0 being not likely at all.
The Harvard Business Review calls this the one question you need to ask all of your customers and we agree. It’s why NPS is the first question in our feedback process.
The simple explanation: NPS is a single number that informs you of customer happiness, loyalty and likely referral business headed your way. It does this by producing a number, clear and concise, that is easy to understand and communicate internally.
Understanding How NPS Is Calculated
Getting a grasp on NPS get’s a little tougher for many when we start to look at how Net Promoter Score is calculated. It’s because the 0-10 scale that your customers answered the NPS question with is not used directly in the form of a simple average that you would assume.
The NPS formula divides your customers answers into three categories and then subtracts just one category from another, leaving one category out entirely. See … that just sounds confusing.
But let’s simplify it by looking at each category and what they tell us about customers that fall into them.
Promoters rated you a 9 or 10 on the NPS question. As the category name implies, these are your customers that will promote your business by telling others they should buy form you.
In real life, this is a customer so happy they might even tell others about your business when they haven’t even been asked about you, your service or product. They are often referred to as your brand advocates.
Remember when your neighbor walked into the last neighborhood pool party and started telling everyone about the company that just painted his house? He raved how how they were affordable, meticulous and so easy to deal with. That’s a promoter, marketing for you with their opinion of their great experience.
Passives rated you a 7 or an 8 on the NPS question. Your business met their expectations, but it didn’t “wow” them. They have nothing or little bad to say about you, but they aren’t confident they want to vouch for your business by telling others.
In real life, you might be talking to a co-worker that tells you about the resort she just stayed at on vacation. When you asked how the place was, she said “it was fine, nothing great, nothing bad … I might try another place next time.” The business captured their money once and might see them again but likely won’t do business with any of their friends.
Pro Tip: As you’ll learn in a bit, this category is left OUT of the NPS formula. But do not skip over this group of customers. Analyze this group and work to figure out how you can move some of them up to being a promoter to grow your business. Just as important is making sure these “passives” do not dip down into the next category we’ll look at.
You can’t please everyone, but you sure can try to develop raving fans of your business.
Detractors rated you somewhere from a 0 to 6. In your customers eyes you fell short, maybe by a few inches and maybe even by a mile if they gave you a zero or one. This category is the opposite of a promoter as instead of singing your praises, they might be telling their friends, neighbors and co-workers to avoid you at all costs.
In real life you meet up with your best friend for a beer and after small talk he asks you if he told you about his current real estate agent. He goes on a 10 minute rampage on how his Realtor never takes his calls, only follows up days later after multiple calls and emails and then messed up some paperwork causing them to waste another 2 hours on his day off.
He’s not going to use or refer that Realtor to anyone, you won’t use them either. You won’t be the only one he tells this story to.
Detractors are exactly that, they are taking business from you.
The NPS Formula
Now that you understand the 0-10 scores fall into 3 categories, let’s look at how to calculate your NPS. It’s very simple. You take the % of promoters minus the % of detractors. That’s it, passives are left out. The answer is your NPS … but the formula produces a number on a scale from -100 to 100, a 200 point scale.
Here is a visual of the formula.
That part gets confusing as we all have been trained to think on a 100 point scale from our school days. 75% in many high school and college classes will get you a C, but in the NPS score range, a NPS score of 75 is great (like an A-).
Below is an example of 100 customers answering the Net Promoter Score question and how their results factored into what the NPS score is for that business.
Once you calculate your NPS and get your score, here are the basic breakdowns of the score. Keep in mind all industries have varying versions of what these ranges are, but this is a simple guide for you.
- -100 to 0: Poor and needs improvement
- 1 to 30: Average
- 31 to 70: Good
- 71 to 100: Exceptional (nobody gets 100, so don’t chase that)
The simple explanation: Net Promoter Score is calculated by subtracting the percentage of your disappointed customers from the percentage of your super happy customers. The results of this formula helps you understand how likely you are to grow because you understand how likely customers are to tell others to buy from you. In one simple number.
Why You Want To Put NPS To Work For Your Business
Net Promoter Score informs you of so many important aspects of your business. You have read more than a few of these above as we explained what it is and the formula. Just a few of these are:
- An indicator of your business growth
- The outcome of your customer experience
- An indicator of customer loyalty
- Your level of customer service
- An indicator of getting good online reviews
If you are a small business, tracking, measuring and using NPS can be a huge difference maker. While many businesses are willing to fly blind with what their customers think, NPS can help give you an advantage to understand your customer’s loyalty and willingness to refer you.
If you are a multiple location or franchise business, NPS is a fantastic way to track the performance of each location in your company. You can gleam location level insights while still measuring your NPS at a brand level.
Any business will benefit from the simplicity of NPS to capture, benchmark and communicate with your staff so you can constantly improve, grow and succeed.