What is Net Promoter Score, and how can you make NPS a meaningful key performance indicator
for your business? NPS is not just “market research” but an operating management tool
that directly links to a company’s results. Welcome to the one video you need to understand,
calculate and improve Net Promoter Score! What makes NPS so popular in the business
community? That’s easy to understand when you check out the title of the article that
launched it: “The one number you need to grow”, by Fred Reichheld, December 2003,
in the Harvard Business Review. I would recommend you to take the time to read the original
article in full. Net Promoter Score promises a radically simple approach to measure and
manage customer loyalty, which should kickstart revenue growth. As CEOs are always under pressure
to grow the company faster, and NPS offers them a clear path to get there: BINGO!
The NPS method asks only a single survey question: “How likely is it that you would recommend
[company X] to a friend or colleague?” It’s quick, it’s straightforward. Respondents
are asked to provide their answer on a scale where ten means “extremely likely” to
recommend, and zero means “not at all likely”. That’s it! Just that one question. NPS is
popular to the point that versions of the Net Promoter Score are now used by two-thirds
of Fortune 1000 companies! Why is this such a powerful question? The
words “would you recommend” both inquire whether you like it, as well as whether you
would put your reputation at risk for it. After all, you would be the one recommending
it to someone that’s important to you and that you care about.
Traditionally, companies tend to use boring customer surveys with lots of questions that
hardly anybody answers. Or if respondents do answer the survey, they might be just be
mechanically clicking the same column over and over again, without even reading what
they are rating. Why would you even bother gathering that kind of low quality response
data? NPS promises to be faster, real-time, simpler and more cost-effective.
Let’s go through the steps of the NPS calculation in detail. Let’s say we get 400 people to
respond to our NPS survey question. Their ratings turn out to be all over the place:
from 4 people rating the company at the absolute lowest number possible (a zero, not likely
or even definitely NOT going to recommend), all the way to 44 people rating the company
at the highest number possible (a ten, extremely likely to recommend). Let me take you through
the steps to turn those ratings into an NPS score: the Net Promoter Score calculation.
The ratings are grouped and labeled into just three NPS categories. From left to right:
detractors for those who scored 0 through 6, passives for those who scored 7 or 8, and
promoters for those who scored 9 or 10. Promoters are only the most enthusiastic customers,
those with the highest rates of repurchase and referral, the people that can create growth
by word of mouth for your company. For this particular survey, 188 people fall into the
detractor category, 96 into the passives category, and 116 into the promoters category. In other
words, the 11 possible ratings (from 0 through 10) given by the 400 respondents are aggregated
into 3 response categories. As the next step in the Net Promoter Score
calculation, these three absolute numbers are then converted into relative numbers:
188 detractors out of 400 respondents is 47% of the total, 96 passives is 24% of the total,
and 116 promoters is 29% of the total. Those percentages are then used to calculate
the Net Promoter Score. The NPS formula says: take the percentage of promoters and subtract
the percentage of detractors, in this survey 29% minus 47%, which leads to an NPS of -18%,
or more commonly expressed as -18. How to interpret the Net Promoter Score? Two
things we know absolutely for sure: an NPS of +100 means everybody loves us, while an
NPS of -100 means everybody hates us. Now, those are not the official labels, or the
official language that an NPS practitioner would use.
An NPS of +100 means that 100% of the survey respondents are promoters (they all rated
the question with a 9 or 10), there are no passives, and no detractors.
An NPS of -100 means that 0% of the survey respondents are promoters, there are no passives,
and 100% are detractors (they all rated the question with a 0, 1, 2, 3, 4, 5 or 6).
If we calculated an NPS of -18 for our survey, then we know we have more detractors than
promoters, which is not a good thing. So what is a good Net Promoter Score? Well, in the
original study by Fred Reichheld, Bain & Company, and Satmetrix Systems, in the early 2000s,
the median NPS was 16. Anything above 20 is considered "favorable". Bain & Co, the source
of the NPS system, suggests that above 50 is excellent, and above 80 is world class.
A high Net Promoter Score indicates high customer loyalty, which in turn affects growth and
profitability. At -18, there is lots of room for improvement.
To start the process of NPS improvement, it is important to go back to the survey data.
There seems to be a cluster of respondents that rate the company a 4. Can we come up
with improvement plans in order to bring those people from 4 to 7, from detractors to passives?
And how about the respondents currently scoring a 7 or 8? They are very close to becoming
promoters, what improvements can we make to raise that to a 9 or 10? Or if we are really
bold, let’s listen carefully to those respondents that rated us 0 or 1, identify what went wrong
and how we might be able to solve their problem. If we really care for the unsatisfied customers,
and they really feel the impact, we might even turn these from detractors straight into
promoters. NPS is not something that one person “solves” as an equation in a spreadsheet
in an ivory tower far from the operational reality. Net Promoter Score is a process for
continuous improvement, where results need to be transparent, consistently compiled,
communicated, and owned by the whole organization! We need more promoters and fewer detractors
in order to grow. The goal is clear-cut, actionable, and motivating.
In order to get the story behind the NPS rating, simply give respondents the opportunity, in
free format, to share the main reason for their score. That can be part of the online
NPS survey response form, or the topic for a follow-up conversation. You are not trying
to change their mind and have them “redo” the rating for the existing dataset! You are
not overloading them with tons of follow-up questions. You are trying to find the root
cause for the rating they gave, make operational improvements, and ensure that the same customer,
or a new customer for that matter, has a much more favorable experience in the future, and
as a result might rate the company higher in the next survey.
This is what the internal conversation about NPS improvement ideas could look like:
Which factors (to compete on and invest in) should be created that the company or the
industry has never offered? Which factors that already exist should be
raised well above the industry’s standard? Which of the factors that the industry takes
for granted, but that don’t create much if any value for the customer, should be reduced,
or eliminated? Fast-forward in time. The company works passionately
and diligently on improvements for some time. Did the customers notice the impact of these
improvements? A new NPS survey, or even better continuous monitoring of NPS ratings, reveals
that a new group of 400 respondents has an aggregated 136 detractors, 84 passives, and
180 promoters. Convert that to 34%, 21%, and 45% of the total. What score comes out of
that NPS calculation? 45% promoters minus 34% detractors, yields an Net Promoter Score
of 11. Better than before: there are now more promoters than detractors. However an NPS
score of 11 is nowhere near excellent yet. What further improvements can be made that
might impact NPS? This is the next phase of the NPS improvement cycle.
Net Promoter Score has become very popular in the business world and beyond. Many variations
have appeared to the original question of “Would you recommend this company to a friend?”.
Would you recommend this product to your family? Would you recommend our service to your neighbours?
Would you recommend this software to your team? Would you recommend this training to
your colleagues? Would you recommend this YouTube channel to other students?
The more popular a tool becomes, the higher the likelihood that somebody doesn’t like
it. One of the key objections to NPS is related to the way Net Promoter Score is calculated.
Let’s take another look at the survey results we just gathered, and let’s call those survey
responses dataset 2. The ratings are all over the place: 400 respondents gave ratings all
the way from 0 to 10. Specifically: 2 respondents rate the company a zero, 56 respondents rated
the company a ten, and the other ratings are in between. For purposes of the NPS calculation,
dataset 2 is equal to dataset 3, where out of the 400 respondents 136 rated the company
with a zero, 84 rated it with a 7, and 180 with a 9. This in turn is, for NPS purposes,
equal to dataset 4, where out of the 400 respondents 136 rate the company with a 6, 84 with an
8, and 180 with a 10. Which dataset would you prefer to get as a response to your survey?
Yep, dataset 4, as each of the detractors is very close to becoming a passive, and each
passive is very close to becoming a promoter. Yet, the NPS calculation makes no difference
between datasets 2, 3 and 4. Each dataset has an aggregated 136 detractors, 84 passives,
and 180 promoters. This leads to the same relative sizes of populations: 34% detractors,
21% passives, 45% promoters. Which in turn leads to the same NPS score for each dataset:
11, 11, and 11. That’s just the way NPS works…. Net Promoter Score is a blunt tool
by design, it’s not specific on purpose! Unless you can get respondents from one category
to the next, in other words move them above 6, or above 8, NPS doesn’t move!
The second objection to Net Promoter Score is cultural. Different regions, or different
countries, tend to rate providers with varying degrees of enthusiasm. In some cultures, people
are very outspoken in sharing praise and give higher ratings than just about anyone else.
In other cultures, people tend to rate very conservatively, even if they are satisfied,
as there’s always something to improve. There might also be cultures where it is seen
as rude to give very negative or very positive feedback. So be culturally careful when comparing
NPS scores between countries. Some researchers have even suggested to adapt the NPS scale
by region: they argue that for Europe, a 6 or 7 rating should be categorized as passive,
while 8s, 9s and 10s would be promoters. A further objection to NPS is that there are
people and companies that “game” the Net Promoter Score. Now that’s not something
new, and not something that exclusively applies to Net Promoter Score. Any metric that a company
introduces, and attaches importance to, is likely to get “gamed” by somebody somewhere.
Sad, but true. Here are some ways that NPS gets manipulated, and why you should avoid
this “gaming” behavior in your company: “If there is any reason for you not to rate
us a 9 or 10, please contact us before filling out the survey”. This is called priming
or anchoring in psychology. If you want true customer loyalty feedback through an NPS survey,
then don’t do this. “Please rate us a 9 or 10, or don’t do
the survey”. This is manipulation of the sample size and the results. Don’t do it.
You want true customer loyalty feedback from a representative sample of customers, that
you can use to start improvements. Don’t discard any valuable feedback that you can
learn from. “Show that you’ve rated us a 9 or 10 to
receive your discount voucher”. Here you’re “buying” your NPS ratings. Don’t do it.
No begging either. “Please help. We can only count you as a “promoter” if you score us 9 or 10”. Don’t do it, no need
to disclose the NPS categories to the customer. Keep it simple and real.
“Will you rate us 10/10? Here’s the link to the survey:”. Priming or anchoring. Please
let the customer decide independently how they rate you, using their free will.
If you use NPS well, then you use it as a tool to measure true underlying customer loyalty.
That is similar to Rene Magritte’s painting “This is not a pipe”. It’s a painting
of a pipe, an image of a pipe, not a pipe (the object) itself. Net Promoter Score is
a representation of customer loyalty (“the image”), not customer loyalty itself (“the
object”). A word of caution for CEOs that embrace Net
Promoter Score. It’s a great tool. Use it to achieve continuous improvement in your
company, and as a result try to achieve superior growth in your industry. But don’t “overdo”
NPS. If compensation is tied to improvements in Net Promoter Scores, then you know what
might happen: either you encourage “gaming” the score, or people start confusing the means
(NPS) with the end (loyal customers and revenue growth). If you measure Net Promoter Score
on an overly granular level, in other words by team, or even by individual, you are creating
a culture of fear. That’s not the way to motivate people: “Get your NPS score up,
or else….”. Would you want to work long-term in a role where you can’t even go to the
bathroom without being reminded about NPS as you walk past one of the screens on the
floor? No, neither would I! Net Promoter Score can be the single most
reliable indicator of a company’s ability to grow…. If you use it correctly!