What is NPS and How to Calculate It

Whether you are the CEO, the product manager, or the product marketing manager of a company, you want your business to succeed.

"You can't manage what you can't measure."

Peter Drucker

To be more successful, a business has to learn how successful it already is.

How do you measure the success of your products or your company?

There are a number of ways to measure the success of a product or a company.

Significant increases in revenue, the total number of customers and the frequency those customers use your products offer valuable information in the success measurement. However, the healthiest way of learning whether your product is successful is by measuring the satisfaction of your customers.

Satisfaction is quality and it is impossible to evaluate qualitative data.

To solve this problem, companies use valuable data called NPS. In this definitive guide, we will cover:

• What NPS is,
• How NPS is calculated,
• Why NPS is important,
• What you can do with your NPS,
• Which companies use NPS,
• and the best tools to collect and calculate NPS with.

What is NPS?

Short for Net Promoter Score, NPS is a highly useful score between -100 and 100 that measures customer satisfaction, obtained after gathering quantitative feedback from customers and running a process of calculations.

Since its first introduction in 2003 in Harward Business Review, Net Promoter Score has become a widely accepted and used metric among the most successful companies.

With the help of NPS, companies can learn whether their customers are loyal and willing to recommend products and the company in their networks. Such data assists in deciding what to improve existing products and services.

First, a variation of the question "On a scale of 0 to 10, how likely is it for you to recommend our product/service/company to a friend or a colleague?” is directed at the users. With the gathered answers, users are then divided into classes. Calculations done using the data of these classes provide you with your NPS.

Let’s take a detailed look at these calculations of NPS and the classes users are divided into.

How to calculate NPS

The process of achieving your Net Promoter Score is categorized into three phases:

1. Surveying
2. Data Categorization
3. NPS Calculation

Each of these phases is simple and no background in any field is required. The whole process is easy to apply to your own business. Just follow along with the phases and pay attention.

1- Surveying

Before starting to calculate anything, you need something to calculate, you need data. In this case, the source of your data is the replies you are going to get for survey customers will go through.

You can include various questions in this survey, but there will be a single question which will matter. The question is usually "On a scale of 0 to 10, how likely is it for you to recommend our product/service/company to a friend or a colleague?” but the words could be changed or reordered to fit your business.

For example, if our blog implemented this question, we could use something like “How likely are you to recommend our blog to your friends?”.

It doesn't have to be just one question.

You don’t have to make it a 1 question survey, it would be useful to follow up with questions such as “What would be the main reason behind your rating?” or “Why would you (not) recommend us?”. Getting to learn the reasons for the high and low ratings could be essential to improve.

Successfully implementing this survey without making it a pain point will help you get genuine responses from your customers. With enough responses, you can move on to the next phase.

2- Data Categorization

Not that the answers to the survey are gathered, the categorization of the users according to this survey has to be made. In the second phase of calculating NPS, the users who participated in the survey are divided into 3 groups depending on their 0-10 answer score.

0-6 Detractors

The group who rated their likelihood of recommending your product or company between 0 and 6 are the customers who are unsatisfied with their experience with your business. This group is called the “detractors”.

Considering the detractors as just a disgruntled group that will be satisfied after fixing their pain points is a huge mistake. Detractors are much more than that, they are a direct threat to your company. A single detractor could do a great deal of harm to your brand by sharing their bad experience in their networks and people are significantly more interested in negative reviews than positive ones.

7-8 Passives

The group in the middle who did not struggle while using your products neither had an efficient and positive experience during their time with your company are called passives.

Although it is easy to improve their experience and improve their scores, they are likely to switch to the competing companies who offer just a slightly better experience.

- 9-10 Promoters

The final group of customers who answered the survey is promoters. As it is clear from the name of this group, these customers are eager to promote your company through their networks. A high number of promoters is ultimately beneficial for your brand because it can be considered marketing with no extra effort.

After dividing your users into these 3 groups, you are ready to calculate your company’s NPS.

3- NPS Calculation

In the first step of calculating a company NPS the total number of customers participated in the survey and the total number of customers in each of the 3 groups are required. With the data you gathered and categorized, you have access to these numbers.

The percentages of each group to the total number of customersparticipated in the survey has to be calculated. The NPS is found using thesepercentages.

For the final step, you subtract the percentage of detractors from the percentage of promoters. Let’s give an example on NPS calculation. You have surveyed 200 customers and gathered their answers. 50 customers rated 0-6 which you categorized as detractors. 70 customers who rated 7-8 are grouped as passives and the remaining 80 customers who rated 9-10 are now in the group of promoters. When you calculated the percentages, 35% of your customers are passive, the %40 are promoters and the %25 are the detractors. When you subtract detractors percentage (25) from promoters percentage (40), the NPS is 15.

If you have gone through all the phases correctly, you now have your company’s Net Promoter Score. But why is calculating your NPS this important, what can you use your NPS for?

Why is NPS important?

Companies from every field of the market whether they are a major company or a new start-up regularly measure their NPS. What makes all these businesses adopt this method of success measurement?

Why is NPS such important data?

The Net Promoter Score of a company offers valuable information on whether the customers are satisfied or not. This data alone makes NPS highly valuable because customer satisfaction is the healthiest way of knowing that your product is a success. It's not the only reason, NPS can enable growth in various ways:

It helps you gather valuable feedback

As we mentioned before, you can direct a question to your survey participators asking what the reason behind their rating is.

This question following their likelihood to recommend ratings will usually end up receiving honest answers that you can use as a valuable source of feedback. You can use the answers of the detractors to make changes and improvements on the parts and features they had negative experiences with. The answers gathered from the passive group could be used for the same purpose.

With the answers gathered from thepromoters group, you will learn what features improved their experience thatended up in such positive ratings. Changing the features and the parts yourcustomers enjoyed using might be a huge mistake and end up significantlychanging your NPS.

Improving the overall experience of your customers using these feedbacks will boost your retention rates. NPS and retention rates are directly related to each other. Especially for SaaS products, boosting retention is key to having long-term overall success with high numbers of loyal customers.

It lets you market without cost

What does a customer trust more and act on? Expensive advertisements that pop-up everywhere or recommendations of their friends and colleagues? You don’t need a professional marketing background to answer this question, it is obviously the latter one.

Accessing people through the channels they already trust is no-doubt a great marketing strategy.

In our case, the channels they trust are their friends and colleagues, or random people they follow on social media. Using your NPS, you can address the pain points of your users and improve their experience, which will eventually lead to an increase in the NPS itself. A high NPS means the majority of your customers are eager to promote your products and your company. Most of them will be so eager that if you provide them with the necessary tools and information, they will actually promote your business.

After your survey, ask your customers who rated above 8 to share your product in their networks. Provide them with a link to a platform where they can write an online comment or leave a review, a share button that allows them to spread your word on online platforms, etc. Offering easy ways to do so can result in positive results in your part.

It lets you see your ranking

A big number of companies calculate their NPS and benefit from it. Your competing businesses in the field might have already done so. Another great use of NPS is that you can compare your score with your competitors.

Comparing your NPS to your biggest competitors is the only way to know whether you are doing well or not. Let’s say you have an NPS of 60, and you might think that you are doing wonderful. But if the average NPS on your field of service is 70 and you are below this average, it means your business is not that great and improvements have to be made.

The same goes for vice-versa. Your NPS might be 20 and it might look like your business is a fail. The terms of your field might be a lot different and the average of your competitors might be an NPS of 10 so it would mean you should keep up the good work. Without comparing your NPS, the actions you are going to take may end up being pointless.

Various sites offer NPS benchmarking and detailed analyzing tools which we have listed in the next sections.

It helps develop and improve

Now that you have your NPS and you know where you rank among competitors unless you have by far the highest NPS, it is time to improve and surpass those competitors. The process of improvement starts with deciding what to improve and develop.

For example, if your users had a hard time figuring out your product, and the reason behind their low ratings is their first impression with your product, your onboarding process might be failing. You can try to improve your onboarding process or try to get external assist from customer onboarding products such as UserGuiding and try the better user onboarding software for free.

If you don't have a clue what onboarding process is or you just didn't realize it could matter so much that it could decrease your NPS, check out our article User Onboarding 101 written by the CEO of Product School.

Thanks to the survey you havecarried out for calculating your NPS, you have a reliable source of feedback toevaluate and carry out developments from. Eliminate user pain points andimprove their experience after evaluation, happy customers mean higher NPS!

Using your good NPS scores, you can request the cooperation of your customers, and using undesired scores you can amend your users. Regardless of being positive or negative, direct feedback from users is fruitful.

What to do with your Net Promoter Score

Now that you know how NPS is calculated and why it matters, it's time to take action.

1. Improve Products and Services

While it might feel like it should go without saying, let’s say it anyway. The first thing to do is to use customer feedback to make genuine improvements to products and services. 

For example, if one thing that Promoters consistently comment on is how responsive and informed support staff is, it is worth giving this feedback to your support staff as a form of encouragement, and maybe prioritize investing in this team so that it remains as a strong selling point for your business.

If detractors consistently comment that the online help chatbot is terrible, can never give them the examples that they need, and just acts as a roadblock to them speaking to a real person, it might be worth assessing if and how the chatbot is used to support customers.

First and foremost, this valuable customer feedback should be made to make genuine improvements to the business, its products, and its services.

2. Activate Promoters

Promoters are incredibly valuable to a business, and not only because they are likely to have a relatively high spend.

They are the most likely people to recommend your products and services to others, and word of mouth, in other words, a personal recommendation, is still the most powerful form of marketing available.

According to a recent Nielsen survey, 92 percent of people trust a personal recommendation from someone that they trust over what the company says about themselves. Word of mouth referrals is estimated to be responsible for 20 to 50 percent of all purchasing decisions.

But just because a Promoter has said that they are likely to talk about you, does not mean that they will. Less than a third of people who say that they are likely to recommend actually follow up and do. If you have a list of who your Promoters are, you can actively encourage them to recommend you.

Strategies generally focus on incentivizing recommendations.

For example, common strategies include sending them a discount that they can offer to a friend or colleague or offering them a discount for everyone who they refer who then becomes a customer, or makes a purchase.

Depending on the brand, companies might incentivize their Promoters to talk about them on social media, a strong source of word of mouth recommendations. This could include encouraging Promoters to use the company’s hashtag, perhaps giving them the opportunity to be in the draw to win something as a result.

The key with Promoters is to incentivize them to actually follow through and make that recommendation.

3. Engage with Detractors

Businesses should never be complacent about Detractors and assume that they are a bit of a lost cause. People who are really unhappy can cause problems if they take to public forums to air their grievances.

Also, if a Detractor has explained why their experience was negative, you have the opportunity to address their issue and improve their opinion of the company.

Often company’s will respond to Detractors with generic communications that include a discount or a coupon in the hope that this will encourage them to use the service again. But these kinds of responses don’t generally tend to satisfy the customer, and they are unlikely to use the offer.

Responses to detractors should always address the specific issue that they had with the company. If it is not something that is easily dealt with, even an acknowledgment of the issue and an apology can transform their opinion of the company as they start to see their negative experience as a one-off rather than the norm.

A good and thoughtful response to a Detractor can at least help discourage them from making negative comments about your company, and at best, may transform them into a Promoter.

4. Push Passives

While Passives don’t pose the same reputational risk as Detractors, they are an audience that is primed to be pushed up into the Promoters group, increasing the strength of your business.

This is the audience that is most likely to respond to incentives such as discounts or loyalty schemes. This helps you retain these customers that tend to have a wandering eye, though it may not help change their overall opinion of your business.

Passives can often be targeted with communications that engage them more with the story of the business and help them to see the business more personally. This could be direct communications from the CEO, behind the scenes stories about staff, and so forth.

Which companies use NPS?

A high percentage of companies that prioritize the success of their business benefit from Net Promoter Score at some point. Here is a list of iconic companies from various industries that use NPS.

• USAA ranks the highest in the banking and insurance industries with 75 NPS.
• Apple has the highest NPS among hardware industry with 47.
• Pizza hut is the number 1 fast-food company in NPS rankings with 79.
• Adobe has 25 NPS.
• Home Depot has an estimated NPS of -5.
• Costco has an impressive 79 NPS.
• Amazon has 25 NPS.
• Verizon's NPS is 7.
• and Netflix has 13 NPS.

All data gathered from customer.guru

NPS Tools

Now that you know what NPS is, how it is calculated, why it is important and what to use it for, you will want to calculate it and benefit from it for your business. Having your internal teams such as development work on it is always a viable option, but it doesn’t ensure the success of the process.

If you don’t want to put an extra burden on your employees’ shoulders and spend your valuable resources on calculating and using your NPS, you can always work with external sources who offer useful tools either for calculating your NPS or evaluating and benchmarking it.

Here's to the list of the best NPS tools on the market:

Top 5 NPS Tools on the Market

Conclusion

NPS is a highly useful metric to measure customer satisfaction and success. Now that you have learned what NPS is, how it is calculated and why it is such an important score, you can make the calculations for your business and start using NPS to improve and develop.

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