Net Promoter Score: Calculation and Interpretation

May 3rd at 4:42pm by Paul Schwarzenholz

In recent years the Net Promoter Score (NPS) has developed into one of the most popular business metrics, not only because it connects customer loyalty with an organization’s success, but also as it is easy to calculate. Like every survey, determining NPS means following certain guidelines. A balanced research method and an appropriate survey format contribute to both obtaining a representative result and preventing important aspects getting lost during the calculation.

Content:

  1. Net Promoter Scores at a glance
  2. Calculating NPS in practice
  3. Correctly interpreting NPS scores
  4. NPS calculations: Using the right kind of survey
  5. Using the right questions to successfully calculate NPS scores
  6. NPS calculations: Measurable boundaries
  7. Quantitative and qualitative research methods: Advantages and disadvantages
  8. Conclusion

Net Promoter Scores at a Glance

How do you determine whether customers are really satisfied with your shopping experience and customer service? With the Net Promoter Score (NPS), you can calculate customer loyalty and thus the likelihood of a customer recommending a company and its products or services.

It is calculated on the basis of a single question which customers answer as part of a 1-2-minute survey:

"On a scale from 0 to 10, how likely would you recommend us to a friend or colleague?"

On the basis of its assessment, the respondents are classified into three groups: Detractors (0-6), Indifferents (7-8) and Promoters (9-10).

Detractors, or critics, are not good for a company and discourage existing and potential new customers to take a product or a service from a particular brand. The causes can be manifold and experience shows that only a single bad experience with customer service or a faulty product is enough to lose both existing and potential new customers.

Indifferent or passive customers, although not passionate critics of a brand, will generate no new customers due to their lack of belief. More likely is the risk of a neutral opinion averting existing customers just as effectively as a very negative one.

Promoters, or fans, form the backbone of a company: They are a loyal customer base, and help bring you new, active, customers. Whilst one should aim to create as many promoters as possible, detractors also have their function and can drive focus on the customer, provided the reason for their dissatisfaction is known.

These three groups are determined by the Net Promoter Score:

Detractors: 0-6

  • are the biggest critics of a company or product,
  • may adversely affect existing or potential customers,
  • reveal improvement potential of a company.

Indifferents: 7-8

  • represent a great uncertainty for a company,
  • may adversely affect existing or potential customers.

Promoters: 9-10

  • are the biggest supporters of a company/product,
  • can positively impact existing or potential customers,
  • can be integrated in specific case studies and new product launches.

Calculating NPS in Practice

As soon as the results of an NPS surveys are available, they can be collated and turned into a Net Promoter Score. This is the process:

  1. Inputing your collected responses into a table (for example, in Excel)
  2. Classification of respondents into detractors, indifferents and promoters
  3. Calculating the sum of all replies within the respective group
  4. Determing the percentage (sum of the groups divided by total number of replies)
  5. Deducting percentage of detractors from the percentage of promoters

The result is a single number that is between-100 (for 100% detractors) and + 100 (for 100% promoters). This ratio is used as a benchmark and gives a company an overall impression of its own brand or services offered. By following the NPS over a longer period of time, management can determine if a strategic change of some kind is necessary.

Example of an NPS calculation

Suppose that 200 surveys were completed. Of your customers:

  • 50 gave a rating of 0-6 (detractors)
  • 80 rated with 7-8 (indifferents)
  • 70 chose a score of 9-10 (promoters)

To calculate the percentage of promoters, divide 70 by the total number of survey replies. The result is 0.35 or, converted to a percentage, 35%. In the same way one also calculates the percentage of detractors, which therefore amounts to 25%.

Subtracting the percentage of detractors from the value of the promoters, gives you a Net Promoter Score of 10 (indifferents are deliberately excluded from this calculation, as their estimated effect is too low):

35% - 25% = 10 (NPS)

But what exactly does this score mean? The NPS of 10 is not perceived as particularly high, but reveals that there are more promoters (i.e. customers who would recommend the company or brand) than detractors. As a result, 10 is generally a "good" score. Depending on what benchmarks are used for comparison purposes, this assessment may change.

Correctly Interpreting NPS Scores

Generally, the Net Promoter Score can be interpreted as follows:

  • Danger zone (-100 to 0): You have more detractors than promoters. Companies with this score may already be losing customers and have a rather negative public image.

  • Good (0-50): The average NPS is just under 30. Most companies scores range from 20 to 40. Here you can meet customer requirements and the number of detractors is small.

  • Very good (50-75): Companies in this area offer excellent service and regularly exceed the expectations of their customers. There is no reason for concern.

  • Excellent (75 to 100): The customer experience and the focus here are an integral part of the brand and serve as a unique sales incentive (for example: Amazon, Apple, or the Four Seasons Hotel).

NPS Calculations: Using the Right Kind of Survey

Many companies that choose to calculate their NPS invest valuable time and resources to find out how many and what type of surveys are necessary. The NPS survey shines in its relative simplicity, which also indicates its easy implementation. Management should be clear about both the advantages and disadvantages of an NPS analysis, but do not need to spend excessive time on planning and speculation. Even when NPS surveys are already in active use, you can develop new strategies which are better matched to your current results.

During NPS calculation, experts differentiate between surveys which measure customer loyalty to a company or brand (relationship surveys) and surveys which examine customer satisfaction through specific interactions at the touchpoint level (transactional surveys). Generally it is advisable to start with broader "relationship surveys' before calculating the NPS for individual segments or touch points. Usually, companies calculate their customer loyalty NPS every three months, six months, or annually. The attitude of customers to the brand as a whole gives clues about which touchpoints should be investigated through additional surveys.

Note: It’s not about analyzing all your touchpoints, but mainly those that detractors have named as being grounds for their poor rating. Companies whose business model is based on individual and rarely repeated transactions should take advantage of every opportunity to send a unique interaction survey to their customers. For a group that is part of an existing loyalty program (for example business class customers or frequent flyers with an airline), it is advisable to carry out two separate NPS surveys.

In summary:

NPS relationship surveys

  • measure customer loyalty
  • measure general attitudes towards a brand
  • indicate which touchpoints are causing trouble
  • are a good step to improving first impressions
  • should be carried out regularly

NPS transactional surveys

  • measure customer satisfaction
  • refer to individual touch points/customer interactions
  • are mainly used to survey customer loyalty
  • are suitable for companies without solid customer base

Using the Right Questions to Successfully Calculate NPS Scores

Calculating your NPS generally only requires one question, which relates to the likelihood of recommending a product or service. However, a management or marketing department can only do so much with a purely quantitative result which includes no critical comments. For this reason, respondents should be asked for comments to support their critical score. This is the best way to use the potential of an NPS calculation. However, caution is advised for further questions: If a survey is too long, it discourages completion, making the response rate low and the result no longer representative. The advantage of a NPS survey is not only that it can measure customer loyalty, but also generates a high number of participants due to their simplicity and this gives organizations a realistic basis for a self-image.

Just by adding a free-comment section explicitly asking for reasons for their score as the second question, generates in our experience the highest answer rates. The more questions in a survey the higher the rate of desertion and the lower the response rate. An open input field has the advantage that the respondent does not necessarily need to choose a given reason. Often, there are several reasons for a rating that are not always known in advance. This leaves it up to the customers to formulate causes, creating significantly more valid data. This is partly due to the fact that respondents can only respond to those elements that they can remember. An open input field is indeed more laborious at the evaluation stage (assuming all responses will be read), but offers more than just speculation. Of great value here is the is the use of evaluation software which clusters the comments together. Text analysis tools can save a great deal of time and make the NPS process much easier. zenloop offers this service through its use of “smart labels” (more here).

An NPS survey produces the best results, if you...

  • use a clear and attractive design
  • optimize it for mobile devices (in the case of online surveys)
  • ask for the probability score (0 to 10) and the accompanying explanatory statement i.e. both quantitative and qualitative information

NPS Calculations: Measurable Boundaries

There are situations where only one type of data collection is appropriate: either qualitative or qualitative. Calculating NPS usually requires a combination of both to generate a meaningful result. Asking about the likelihood to recommend generates a quantitative dataset, as customers are asked to choose a value on a scale of 0 to 10. A critical observer could justifiably ask whether it is at all possible for respondents to quantify a subjective opinion. In addition, every single respondent can interpret the rating scale differently. People with an optimistic attitude to life tend to rate things positive and vice versa. In cultures where the quest for perfection is pronounced, a maximum number of points is very rarely awarded, even if there are no concrete suggestions for improvement.

The aim is to obtain a result that is as representative as possible. However, an organization should be aware that the Net Promoter Score is only an approximate estimation and is regularly influenced by both known and unknown factors. Following NPS over a longer period can therefore show deviations which have little meaning in the overall context. NPS expert Bruce Tempkin advises only to take these fluctuations seriously when a recurring pattern emerges:

"The metric scale of the NPS is not rigid; Indifferents are separated by a bound permeable on both sides by promoters and detractors. [...] Often we see customer insight teams wasting their time trying to explain the smallest movements of the NPS of their company as executives and board members tend to overreact. Rather than aiming for a certain number, you should rather focus on a range of numbers. This only then needs action if the result is repeatedly outside of the chosen spectrum."

Quantitative and Qualitative Research Methods: Advantages and Disadvantages

Prior to generating NPS feedback you should be aware of the advantages and disadvantages of quantitative and qualitative survey styles.

Quantitative NPS question

Advantages:

  • Good measurability and comparability of data
  • Objectivity in analysis
  • Detection of patterns (over time)
  • Measurement of satisfaction of certain products/services
  • Lower cost than qualitative methods
  • Relationship surveys alone are suitable provided certain assumptions already exist and simply require confirmation

Disadvantages:

  • Rigid survey format due to standardization
  • Causes for specified rating are not shown, and this means…
  • suggestions for improvement cannot be inferred

Qualitative NPS surveys

Advantages:

  • Flexible adaptation to survey conditions
  • Helps detect new and unknown relationships
  • Respondents needn’t assign any given answer
  • Information is complete and authentic
  • Respondents determine the focus

Disadvantages:

  • Quality of the data and interpretation depend on the observer
  • Time and cost-intensive evaluation (especially if software like zenloop is not used)
  • Comparison of data relatively difficult
  • Results difficult to represent in figures

Conclusion

The NPS is now the most common KPI for measuring customer loyalty. A rating scale of 0 to 10, combined with an open question for justification, opens up valuable information about customer orientation and the growth of a company.

The Net Promoter Score is determined by a simple calculation. This determines the share of promoters (9-10), detractors (0-6), and the indifferents (7-8). To get your NPS, subtract the percentage of detractors by the proportion of promoters.

The score can be between-100 and + 100. The more promoters a company has, the better its end result. However, using the NPS alone does not give enough information about where the problem areas are. In the survey, the purely quantitative data is therefore perfectly complemented by a qualitative question for evaluative purposes. This combination minimizes the weaknesses of both research methods (quantitative vs. qualitative) and ensures a usable result.

A NPS survey covers not only "blind spots" and the wishes of customers, but is also good thanks to its speed of completion. This results of a high response rate and a representative result, on the basis of which new and better customer strategies can be developed.

Many companies therefore utilise the NPS software zenloop, whose feedback management platform evaluates not only the quantitative data, but also the qualitative and prepares these accordingly.


Paul Schwarzenholz

Founder & Managing Director of zenloop