Net promoter score® is the go-to metric for businesses that are curious to know what their customers or employees feel about them.
In one sentence, Net promoter score® is a quantified score of how your customers or employees see your brand and how loyal they are.
NPS® is calculated by populating the responses to an NPS® survey. The survey requests the customers to rate their score of how likely they are to refer their friends or dear ones to the business.
The survey is sent to customers through various channels like email, in-app notifications, social media and so on.
To understand whether an NPS® score is good or bad, we must first understand how it is calculated.
Before we dive into the specifics of NPS® calculation, you must know that NPS® is an absolute number that lies in between -100 to 100. It is not a percentage as is the case with most KPIs and business metrics.
NPS® segments customers into 3 categories: promoters, passives, and detractors.
1. Promoters are customers who have given a score of 9 or 10. You can count on these customers as those with high lifetime value and those who will remain loyal to the business for the foreseeable future.
Also, they are highly likely to act as mouthpieces for Word of Mouth marketing for your business.
2. Passives are customers who have given a score of 7 or 8. Passives are customers who are currently loyal to the brand but are at a high risk of churning. Their loyalty is fickle and hence can be easily lured by competitors with better pricing, features or even with a single negative experience from your business.
Passive customers are less likely to refer new customers to your business.
3. Detractors who have given a score of 0 to 6. They are a risky lot since instead of spreading positivity about the brand, there is a high chance that they would spread negativity about the brand.
They are also on the verge of churning and have most probably been subject to negative customer experiences in the past.
The NPS® score is calculated as a difference of % of promoters and detractors.
Let’s take the below example to understand NPS® calculation.
- Promoters = 45%
- Passives = 25%
- Detractors = 30%
In this case, the NPS® score would be 40% (promoters) LESS 30% (detractors) which would be +15. As explained before,
NPS® is an absolute number and not a percentage. As a result, a ‘%’ will not be appended to the NPS® score.
That brings us to the question — do NPS® scores remain constant from industry to industry. Are there benchmarks that businesses can measure themselves against? Turns out, yes.
Studies have been conducted to benchmark the prevailing NPS® scores in each industry.
The average NPS® score fluctuates from industry to industry due to the customer expectations, service standards and competition existing in the industry.
For example, the lowest NPS® score for auto dealers is 20. Whereas, the highest NPS® score for TV/Internet services is 19. If these two scores are compared equally, it will depict a wrong picture of customer loyalty.
Now, this brings us to the big question? What is a good Net promoter score®?
Read More: Net promoter score® benchmarks by industry
As a thumb rule, if the NPS score is less than 0, it is a cause for worry. A positive NPS gives some level of comfort.
In other words, an NPS score above ‘0’ can be considered to be good, anything above ‘50’ is great and anything above ‘70’ is excellent.
However, the law of averages explained before paras apply as well. An NPS score can be considered to be good only if it matches the industry average or exceeds it.
If your NPS score is less than the industry average, it indicates that your customers are loyal and are willing to refer to new customers as well.
A negative NPS score indicates that there is more number of customers who would not only refer new prospects to your business but might also spread negativity.
A positive NPS can be considered good news only if it is above the industry average.
But, the underlying point is, there are competitors who are doing better than you at winning customer loyalty and new referrals.
In the long-run, this could cause your business to lose to the competition.
The existing promoters might slip into passives and passive customers could convert into detractors.
So, keeping a tab on your NPS score is crucial. In addition to constant monitoring,
you must also check whether the NPS score is good or not.
Don’t jump into a hasty conclusion. Your NPS® score can be considered to be good or bad only based on some factors. Follow these best practices to make an informed decision.
Compare with the industry average
Like we said earlier in this blog, NPS® is more of an industry-specific metric. So it makes sense and is ideal to look at the industry average and where your NPS® stands in relation to that.
It is also recommended to benchmark your NPS® score against that of competitors. This method of relating an NPS® score to the industry average and competitor scores is referred to as the relative methods of benchmarking.
For example, in the US, the average NPS® score of department/specialty stores is 58. If your business is in the same line, then your NPS® score should ideally be more than 58 or be in this range to be considered a good Net Promoter Score.
Compare with the regional average
If you are a global business, by now it would have been evident how regional differences and cultural values affect consumer decisions.
To cite an example, US customers are willing to pay a premium price for high-end products. Whereas, their Asian counterparts would prefer budget-friendly products that serve the purpose and have reasonable durability.
The same attitude spills over to NPS® survey responses as well. The scores that customers give will be largely influenced by regional practices and cultural beliefs.
To repeat the same example of US and Asian customers, US customers are generous when it comes to giving 5-star reviews or high NPS® scores. Asian customers expect extremely impressive products/services to give a high NPS® score.
As a result, there will be regional imbalances in the NPS® score as well. Hence, the need to benchmark NPS® and compare it on a regional basis.
Without regional benchmarking, you might end up evaluating an average or Good Net Promoter Score® as bad.
Compare score by channels
NPS® surveys are sent through diverse channels like email, social media, mobile apps, SMS and so on. The survey response is bound to vary due to various factors.
For example, email surveys usually get high responses since customers find them to be non-intrusive in nature. Also, it is easy to fill up an email survey since it gives enough buffer time for the customer to think and update.
Other channels like SMS and in-app surveys lose out on these. However, they have their own pros and cons which further influence the NPS® scores.
In-app surveys are contextual in nature and hence can drive accurate responses although the response rate could below.
These differences mean that the business has to populate the NPS® score from various channels and compare them side-by-side to arrive at a benchmark score.
There are several factors you must consider before assuming your NPS® score to be good or bad. First of all, it is not a percentage, but an absolute value. Secondly, it can vary from industry to industry and from region to region.
The channel through which you got your NPS® survey response will also affect the goodness of your NPS® score.
There is one motivational quote that is quite popular and has been doing its rounds on the internet since a long time — The only person you should try to be better than is the person you were yesterday.
When it comes to evaluating an NPS® score as good or bad, this same quote applies as well. A good Net Promoter Score® score is one that is better than your previous NPS® score.