Chattermill Insights

Get our latest insights right in your inbox

by Jack Miller on 23 May 2018

nps

Find out how to calculate it, why it matters and what it can do for your organisation

11
11

Net Promoter Score Definition

Net Promoter Score (NPS) is a seemingly simple yet effective way for companies to track promoters and detractors to produce a clear measure of their performance through its customers eyes. NPS is built on the basis that every company can divide their customers into three distinct buckets - promoters, passives and detractors and customers are categorised based on their response to the standard NPS question - “How likely is it that you would recommend us to a friend?”.

Using data and a disciplined process, it has been proven that companies with higher NPS scores achieve long term growth and NPS leaders grow, on average, at double the pace of competitors.

To track the performance of company growth, take the percentage of customers who are promoters and subtract the percentage who are detractors.

how_nps_works

Net Promoter Score Calculation

Answers to the question are scored on an 11 point scale (0-10) and ranked on an index ranging from -100 to 100 to gauge customers overall satisfaction with a company’s product or service and customer loyalty.

Responses can be defined into three distinct clusters that represents different attitudes, sentiment and economic value.

Promoters (scored 9 - 10):

Promoters are your biggest fans. They actively advocate your product on your behalf, bringing in the majority of referrals, and are far more likely than any group to remain customers. Their Customer Lifetime Value (CLV) is far greater than any others.

Passives (scored 7-8):

Passives are satisfied for the time being, but can defect at any time. Their referral rate is as much as 50% lower than promoters, and those referrals are of far less quality. Their CLV is also usually less than half that of promoters.

Detractors (scored 0 - 6):

Detractors are unhappy customers and account for more than 80% of negative word-of-mouth opinion. They have the highest rates of churn and defection and harm your company’s reputation, putting off new customers.

Net Promoter Score

Your Net Promoter Score is the percentage of promoters minus the percentage of detractors.

The Net Promoter Score is a simple and straightforward metric that can be shared throughout the company with every function and team. You can also track by product, store, team, geography and more to focus on the goal of improving customer experience.

If you have more detractors than promoters the score will be negative and likewise positive for more promoters than detractors. Lower Net Promoter Scores can be indicators of harmful customer experiences leading to potential losses of revenue, whilst higher Net Promoter Scores suggest a stronger performing business.

The median NPS score is just 16 and typically remain quite low; depending on the industry.

NPS Economics

Striking the balance of promoters and detractors through Net Promoter Scores is clear. Promoters will actively advocate your business on your behalf, repeatedly purchase and refer you to friends. They not only bring in the most revenue, but are also most likely cheaper to manage than detractors.

Detractors will cost you money both in terms of damaging your brand and also the resources required to deal with their complaints. They are also more than likely to not purchase repeatedly.

NPS-5 Copy

The Net Promoter Score accounts for between 20% and 60% of organic growth for companies and on average the industry leader’s NPS is twice that of its competitors.

It has also been found that promoters are more than 6x likely to forgive, are more than 5x as likely to repurchase and 2x more likely as detractors to recommend a company.

Calculating NPS is just the start

NPS is far more than a score. Also following up your NPS question asking customers for the reasons why they left their score with an unstructured and open-ended form allows you go beyond the score to identify the root causes driving promoters, passives and detractors experiences.

Scores will tell you what happened; feedback tells you why, allowing you to build feedback into part of their daily systems to amplify the factors improving customer experience and nullify the largest negative driver to create a fully closed loop CX process.

Over the course of the following chapters we’ll walk you through everything you need to become an NPS pro, right the way through from collection, analysis and insights.


  • img

    Jack Miller

    As a CX Analyst, I work with companies designing their customer journeys to ensure they are both comprehensive and accurate. Applying cross sector best practices and an understanding of each business’s unique relationship with their customer base, I focus on identifying what elements need to be put in place to take each organisation from their current level of customer understanding to a best in class understanding of all customers.