Understanding Net Promoter Score

December 7, 2016 / Business

“How likely are you to recommend this company to a friend or colleague?”

Understanding Net Promoter Score was among the first posts we published about NPS. Since then it has become one of the most-read articles on this blog. After a year and a dozen of articles about NPS, we decided this guide needed a refresher.

This guide is for the novice. The business owner who knows they need a pulse on their customers, but doesn’t quite know where to begin. Perhaps a friend or colleague mentioned Net Promoter Score, and now you’re here.

I’m happy to tell you, this is the right place. This guide won’t tell you everything, but it will give you a solid foundation and a bit of perspective.

Who are we? Trustfuel makes simple, beautiful customer success software. We help customer success teams collaborate, create advocates and reduce churn. If you’re a customer success professional, I’d encourage you to sign up for a demo.

OK, let’s talk about NPS.

Understanding Net Promoter Score Graphic

Table of Contents

What is Net Promoter Score?

If you’ve only got a minute, here’s the short answer.

Net Promoter Score, also known as NPS, is a management tool that came into popularity over the last decade. Many have touted it as the best indicator of future growth and lauded the system for it’s simplicity. NPS is easy to understand, easy to implement and easy to respond to.

You might not be familiar with NPS, but I’d be willing to bet that you’ve responded to an NPS survey. You’ve probably answered the famous “How likely are you to recommend (company, service or product) to a friend or colleague?” question.

That single-purpose question is usually followed by a 0-to-10 scale. Answering zero means that you would not recommend the company, while answering ten means you’re extremely likely to. Based on the recipients response they are either marked as a promoter (9 or 10), passive (7 or 8) or detractor (0–6).

Once recipients reply with a number, the survey asks them to explain why they chose that number. This is always an optional question.

Survey responses are then collected. The percentage of promoters are subtracted from the percentage of detractors. The resulting number ranges from -100 to 100. This is the Net Promoter Score.

A Brief History

In the late 1990s a man from Bain & Company named Fred Richheld was looking for a better customer satisfaction survey. The current customer surveys were long, complex and tiresome. They had low response rates and ambiguous implications.

It makes sense. After a long trip who wants to answer 20 questions about their car rental experience?

The bigger problem was that there was little data tying any one question to the true loyalty of a customer. Richheld knew he needed a simpler survey, but how would he know what questions to ask? What questions and responses were linked to customer loyalty?

To answer this question he came up with the Loyalty Acid Test. This was a 20 question survey that he designed with several Bain colleagues. Richheld had collected purchasing data about all the customer responding to this survey. Armed with that data he determined what questions had the strongest statistical correlation with repeat purchases or referrals.

This survey was administered across 14 different industries. In 11 of those 14 industries “How likely is it that you would recommend (company) to a friend or colleague?” was the question with the highest or second highest correlation of repeat purchases. In two of the remaining three industries, this question ranked so close behind the top question — it would be as accurate a measure.

With the right question pinned, Richheld needed to find the right format for responses. The scale needed to divide consumers into different groups. They settled on a 0-to-10 scale. A customer answering with a ten would be extremely likely to recommend the company or product. A customer answering with zero, would not consider it.

In 2001 a company called Satmetrix was tracking tens of thousands of what they called “would recommend” scores. These scores were across more than 400 companies and dozens of industries. Where there was reliable revenue data, Richheld started plotting net promoter scores against revenue.

“The results were striking. In airlines, for example, a strong correlation existed between net-promoter figures and a company’s average growth rate over the three-year period from 1999 to 2002. Remarkably, this one simple statistic seemed to explain the relative growth rates across the entire industry; that is, no airline has found a way to increase growth without improving its ratio of promoters to detractor.”

Not only was there a correlation between the likelihood question and repeat purchases, but that there was also a correlation with a company’s revenue growth. What was happening?

Richheld theorized that the only path to profitable growth was through loyal customers. Customers so loyal that they were willing to put their reputation on the line.

These loyal customers — these Net Promoters — were telling friends and colleges about products. They were working marketing products and services on behalf of the company.

In the winter of 2003 Richheld published his findings in the Harvard Business Review. The article titled The One Number You Need to Grow, was a gigantic hit in the business community.

It’s publication is considered the birth of Net Promoter Score.

Understanding Net Promoter Score

One of the primary drivers behind Net Promoter Score is it’s simplicity. It’s easy to explain, easy to implement and easy for customers to respond.

Here we’ll go into a bit more detail to help you understand how all the pieces fit together.

The Likelihood Question

“How likely is it that you would recommend (company, service or product) to a friend or colleague?”

You’ve heard that question or some variation of it before. It’s known as the Likelihood question or the NPS question. It forms the core of the Net Promoter Score survey.

The single-question survey is often emailed to customers, although the timing may vary. A SaaS company may send surveys quarterly, while an online retailer may send them several days after a purchase.

Customers can respond to the Likelihood question with a number 0-to-10. A customer that answers zero is not at all likely to make a recommendation, while one who answers 10 is very likely to recommend.

Promoters, Passives and Detractors

You’ve probably heard the term Promoter, Passive or Detractor thrown around. These are based on responses to the Likelihood question. Depending on score customers are placed into one of three categories:

Net Promoter Score Promoter

Promoters (Answers 9 or 10)

These clients are your most loyal customers. They are enthusiastic, see real benefits and are likely to refer your product to others. These are the Net Promoters in Net Promoter Score and are a valuable asset for growth.

Net Promoter Score Passive

Passives (Answers 7 or 8)

Passive customers find your product satisfactory. They are content getting what they paid for, and don’t feel strong enough to put their reputation on the line. These customers are susceptible to competitors, given better prices or features.

Net Promoter Score Detractor

Detractors (Answers 0 through 6)

Detractors are clients who are unhappy and At Risk if you depend on subscription revenue. Customers tend to fall in this category when products don’t meet expectations or service is particularly poor.

As a side note: I’ve seen tools reduce the 11-point-scale (0 to 10) to a five points scale — often represented by stars. Having a star scale is fine, but understand that it is not NPS.

NPS vs Star Rating vs Point Rating Graphic

The standard NPS 0-to-10 scale provides a greater number of options. This creates greater specificity in responses as you can see in the graphic above.

If you’re interested in more details about scoring, consider our book on Getting Started with NPS. It goes into much more detail.

Gathering Responses

While most surveys are sent through email, alternative solutions do exist. There is a religious debate in the NPS community about the quality of in-app surveys.

Many NPS software companies have begun offering in-app NPS features. In-app surveys tend to provide a higher number of responses. Proponents point to this and claim the more responses results in a more accurate score.

Those who oppose in-app solutions, belive it is intrusive to users. However, the larger issue is that in-app surveys may not reflect what you’re trying to survey. Consider a user frustrated with a specific feature — they may provide an unfavorable rating when their overall view is quite positive.

At Trustfuel we tend to discourage use of in-app surveys. Our own NPS Tool only supports email-based surveys.

Regardless of score accuracy, we belive in-app surveys provide a poor experience to customers. Think about all the apps that interrupt you to rate them? It’s a nuisance.

Calculating Net Promoter Score

The formula itself is a critical part of understanding Net Promoter Score. The good news is that calculating NPS is almost as simple as sending surveys. Once you’ve collected survey data it will be beneficial to put all scores into a spreadsheet. You’ll want to break down responses into detractors (0–6), passives (7–8) and promoters (9–10).

To calculate the NPS for your campaign take the number of promoters and divide that number by the total responses for the campaign. This is the percent of promoters.

Then take the number of detractors and divide that number by the total number of responses. This is the percent of detractors.

Now subtract the percentage of detractors from the percentage of promoters. Here’s what the equation looks like:

NPS = (Number of Promoters / Total Responses) – (Number of Detractors / Total Responses)

Or to simplify the NPS formula further.

NPS = Percent of Promoters – Percent of Detractors

The result of this equation will give you a number from -100 to 100. This number is your Net Promoter Score.

Interesting to note: The NPS formula ignores passives entirely. This has sometimes been voiced as a criticism against the system. Feedback from passive clients is still actionable.

The good news is you don’t really need to know this formula. Most software will handle the calculation for you. See our review of the best NPS software.

Closing the Loop

Perhaps the most important, but overlooked part of Net Promoter Score involves reaching out to customers that provided feedback. How many times have you taken a moment to add a thoughtful comment or express a poor experience only to hear nothing?

How does that make you feel? It sucks. It gives off the impression that your opinion doesn’t matter.

Quickly following-up lets customers know that you have heard them. It also gives the business an opportunity to engage and learn more from that customer.

In the case of a promoter, they may have constructive criticisms. They love your product, but also know where it all short. Or in the case of a detractor they might have a question that requires a response. Perhaps, that customer’s impression improves based on that discussion?

Criticisms of NPS

Net Promoter Score is simple, straightforward and easy to implement. However, it is not a perfect measurement system. Over the years NPS has seen it’s critics.

One of the most well known criticisms is survey fatigue. Customers fill out the same surveys over and over again, but slowly get tired of it. They don’t feel like their opinion has an impact on the company, and start ignoring them.

Building on the previous section, this is usually caused by a business failing to close the loop. Unfortunately, what one business does can have an effect on another. The ubiquity of NPS surveys makes this an issue.

Another problem with NPS is that it has the potential to be gamed. This often happens in lower levels of an organization when far too much emphasis is placed on scores.

When companies offer incentives such as bonuses for high scores, they are asking for that metric to be gamed. Or consider a company where the customer’s job is dependent on good scores. In either case employees are going to ask customers to give them positive ratings.

NPS scores can also be gamed by timing surveys. Did you just release a new version of your software? Did you just send all of your customers a card for the holidays? It won’t always be avoidable, but intentionally sending surveys out after positive events may skew NPS scores.

If you’re interested in more ways that the system can be gamed Satrix Solutions, has written some interesting commentary.

I don’t think survey fatigue or systems being gamed is anything specific to NPS. Putting too much emphasis on any one system will lead to the scenarios stated above.

Know that while we love NPS, it isn’t perfect.

What About Other Metrics and Systems?

So you’ve decided that Net Promoter Score isn’t for you. There are a few alternatives to NPS.

Customer Effort Score (CES) is, perhaps, the most often-mentioned alternative. In a similar manner, CES asks a range question. As opposed to the “How likely is it that you would recommend (company, service or product) to a friend or colleague?” question, you’ll get a “How difficult was it to (signup for a demo, return a product, upgrade the software)?” question.

With Customer Effort Score, businesses are trying to gauge the amount of friction it takes for customers to do business with them. If it is difficult to sign-up for a demo, that’s a barrier to a paying customer.

Another alternative is the American Customer Satisfaction Index (ACSI). Admittedly, I am less familiar with this system than NPS or CES. ACSI is proprietary, which means that your company will have to pay for the model.

The American Customer Satisfaction Index surveys contain a variety of questions that appear to be weighted. This excerpt from their website explains some of the methodology.

“The indexes (shown in the diagram below) are multivariable components measured by several questions that are weighted within the model. The questions assess customer evaluations of the determinants of each index. Indexes are reported on a 0 to 100 scale. The survey and modeling methodology quantifies the strength of the effect of the index on the left to the one to which the arrow points on the right. These arrows represent “impacts.” The ACSI model is self-weighting to maximize the explanation of customer satisfaction (ACSI) on customer loyalty. Looking at the indexes and impacts, users can determine which drivers of satisfaction, if improved, would have the most effect on customer loyalty.”

Where to go from here?

If you’re looking for a more comprehensive test or don’t like the brevity of NPS or CES, then ACSI may be a good alternative.

It’s been about 15 years since Richheld’s The One Number You Need to Grow was published. It’s popularity has not waned. In fact interest has steadily grown.

It’s simplicity for both customers and businesses has made it an indispensable tool. We think it’s a sign that NPS works and is here to stay.

If you’re interested in reading more about Net Promoter Score, I’d suggest checking out our book on Getting Started with NPS. Of course you can always subscribe to this blog using the form at the bottom of this page. We frequently write about NPS and customer success.

If you are part of a SaaS business consider signing up for a demo of Trustfuel’s Customer Success Platform. It will help you make sure that those NPS scores keep going up.

Thanks for reading!

Understanding Net Promoter Score first appeared on the Trustfuel blog on July 17, 2015.