Consider the last meal you ate out at a restaurant. Did you like it? How would you rate it on a scale of 1 to 10?
It can be hard for business owners to know what to do with this kind of data. A 10 could either represent the tasting menu at Noma or a local sandwich shop, and it’s tough to determine what constitutes a passing grade.
Now call up that same meal and ask yourself if you’d recommend that a friend order it. This type of question generates more conclusive data. When you refer somebody to something, you’re staking your reputation on its quality, and a high likelihood of referral is a clear sign of approval.
Measuring net promoter score (NPS) allows business owners to leverage this fact, generating a single, powerful data point for customer satisfaction.
What is a net promoter score?
A net promoter score (NPS) is a customer satisfaction metric. Businesses gather NPS data by surveying current customers. Although survey distribution methods and additional questions can vary, the NPS question is standardized. All NPS surveys have customers answer the following question: "On a scale of 0 to 10, how likely are you to recommend us to a friend?"
Businesses use NPS to measure customer loyalty and predict business growth.
Benefits of measuring NPS
Measuring your NPS can be an efficient and effective way to gauge customer loyalty. Here’s an overview of the benefits.
- Simplicity. The NPS question is easy to understand and answer, and analyzing NPS data is relatively straightforward.
- Affordability. NPS surveys can be a cost-effective way to monitor customer satisfaction.
- Relevance. NPS data is directly relevant to your business. Happy customers suggest that your business is healthy, and unhappy customers indicate trouble.
- Popularity. Because NPS is a common method of measuring customer loyalty, you can compare your score to your industry average. Some companies also publish NPS, allowing you to benchmark against specific competitors.
- Predictive value. NPS is a non-financial metric that can predict revenue growth. Improvements in NPS indicate increasing customer satisfaction, which can lead to increased sales. If your NPS drops, you can expect a decrease in revenue unless you identify and remedy your customer satisfaction problem.
Limitations of measuring NPS
On its own, NPS provides an incomplete picture of your business. Here’s an overview of their limitations.
- Subjectivity. NPS is self-reported. It doesn’t tell you how many of your customers made referrals (or didn’t)—it only tells you what customers say about their likelihood to take this action.
- Lack of specificity. NPS can help you measure customer satisfaction, but it can’t necessarily tell you why your customers feel the way they do.
- Could be skewed. The validity of your NPS depends on the methods you use to gather your data. If your sample size is very small (or skewed toward your most loyal customers), your score might not be an accurate representation of your overall performance.
5 things NPS can tell you about your business
Here’s what you can learn from conducting an NPS survey—and how you can use that information to provide a better customer experience.
1. What consumers think of your company
NPS tells you how likely your customers are to refer your company to others, providing critical information about the most important aspect of your business—whether or not your customers are satisfied.
A high overall NPS suggests that your customers approve of your product or service, your customer service activities, your price point, and your overall brand—or that they approve of one category so strongly that they are willing to overlook drawbacks in others.
2. What consumers think of individual products, services, or departments
You can also use NPS to measure customer perception of individual products, services, or departments, and use this data to identify areas for improvement. If you earn a high score for your organic dog treats and a low score for your customer service, for example, you can focus your efforts on customer service improvements.
3. What your employees think of your company
NPS feedback can also help businesses gauge employee satisfaction. When you measure NPS among your employees, this is called “eNPS.”
If employees are likely to recommend working at your company to a friend, you can infer that they like working for you and approve of your overall mission, services, and workplace environment. A low NPS tells you that your workforce is dissatisfied and you need to conduct further research to identify and solve the problem.
4. How you perform against various competitors
Calculating your NPS makes it easy to benchmark your company against your competitors. If you’re underperforming your industry average, analyze your products, services, and customer service practices to figure out why. Some companies also publish their scores, allowing you to identify higher-scoring competitors and compare their products or services and customer satisfaction strategies to your own.
5. How customer perception changes over time
NPS data can also help companies benchmark against themselves. Because NPS surveys are relatively easy to analyze and distribute, you can repeat them regularly and monitor for changes. You can also use them to evaluate changes in your offerings or efforts to improve your customer experience.
How to calculate NPS
To calculate your NPS, group survey respondents into three categories—promoters, passives, and detractors—based on their answers to the NPS question.
- Promoters answer with a 9 or 10. They are enthusiastic advocates for your company.
- Passives answer with a 7 or 8. They are mildly enthusiastic about your business.
- Detractors respond with a score of 6 or below. This group represents unenthusiastic customers.
Your NPS is the difference between the ratio of promoters and detractors relative to the total number of customers surveyed. To arrive at your numerical score, calculate the percentage of customers that fall into each category and subtract the percentage of detractors from the percentage of promoters.
In other words, the NPS equation looks like this:
NPS = [(number of promoters / total number of respondents) - (number of detractors / total number of respondents)] x 100
If your company surveys 100 people and has 40 promoters, 50 passives, and 10 detractors, your NPS calculation will read:
NPS = (40/100 - 10/100) x 100 = 30
In general, any positive number is considered “good”—a positive NPS indicates that the number of customers likely to refer your business to others exceeds the number of customers unlikely to refer your business. Because scores vary considerably by industry, however, many companies consult industry benchmarks to determine individual targets.
5 tips for building a good NPS survey
Your NPS data is only useful if your survey methods are effective. These five tips can help you conduct an NPS survey that provides relevant feedback and gathers the information you need to improve.
1. Gather objective data
Although NPS is based on the answer to one question, you can use an NPS survey to gather additional customer information. Consider gathering demographic data and asking objective questions like “How long have you been a customer?” and “Which of our products have you used?” You can then use an app to separate responses according to those factors and identify differences in scores by audience segment.
2. Solicit customer feedback
You can also use an NPS survey to solicit customer feedback. Consider including open-ended questions like “Why did you give us this score?” and “What can we do to improve?” If your team has the capacity, you can even follow up personally, thanking respondents for their input and communicating how you’ll address their concerns. Pay special attention to suggestions for your detractors, using those insights to decrease customer churn.
3. Consider your sample size
The more responses you get, the better your data will be—but surveying every single customer usually isn’t possible. Gather as many responses as you can without exceeding your capacity to analyze answers to open-ended questions.
4. Consider your sample set
You also need to make sure that you survey a representative sample of your customers. Ideally, no one factor (or set of factors) will make it more likely for a customer to appear in your sample set. A digital randomizer tool can help you avoid bias. Input all names in your customer database into the tool, randomize the order of the list, and survey the first 400, 1,000, or 3,000 respondents (depending on your previously determined sample size).
5. Send strategically
To boost response rates and improve data validity, send surveys on multiple channels. If you send surveys only via your brand’s app, for example, you will unwittingly limit respondents to users who’ve downloaded your app (and are likely to be stronger advocates of your company).
Some businesses also time NPS surveys with the customer journey, surveying only customers who have recently purchased a product. This strategy can increase response rates and provide data about recent customer experience—but don’t forget that these results aren’t representative of your entire customer base.
What is a net promoter score (NPS) FAQ
What industries typically have high net promoter scores (NPS)?
The following industries had high average NPS in 2022:
- Insurance: 71
- Consulting: 69
- Ecommerce: 62
- Retail: 61
- Technology and services: 61
- Digital marketing agencies: 60
- Financial services: 56
How often should NPS be measured?
Net promoter scores are most valuable when collected regularly, but exactly how often you should calculate NPS depends on the size of your customer base and your internal capacity to administer and process NPS surveys. Many small businesses measure NPS once or twice per year.
Can a NPS be negative?
Yes. The NPS calculation subtracts the percentage of respondents who qualify as detractors from the percentage of respondents who qualify as promoters. If you have more detractors than promoters, your NPS will be negative.
How many customers should be surveyed to get an accurate NPS?
The ideal size of an NPS survey sample set depends on the following factors:
- The margin of error with which you are comfortable
- Your desired standard deviation
- The likely distribution of promoters, passive, and detractors in your sample set
If you’re comfortable with standard deviations and margins of error, you can use statistical analysis to calculate the ideal size of your sample set. If you’re terrified, follow this rule instead: Assume your sample set is representative of the whole. So, the more customers you survey, the more accurate your data will be.
