In it, he announced his discovery of the end-all-be-all of customer service metrics.
He figured it out. Just listen to his closing statement:
“The path to sustainable, profitable growth begins with creating more promoters and fewer detractors and making your net-promoter number transparent throughout your organization. This number is the one number you need to grow. It’s that simple and that profound.”
Maybe a slight exaggeration. But Reichheld was on to something.
Before long, some of the world’s best customer service organizations, like Apple and Amazon, were tracking their Net Promoter Score.
Then it really caught on.
Nowadays, everybody in the world of customer service has heard about NPS.
In this post, we’ll go over everything you need to know about this popular metric, including: how NPS is defined, the formula for calculating NPS, industry benchmarks, and why NPS has received criticism.
Let’s get started.
What is Net Promoter Score?
Net Promoter Score is defined as a measure of how likely your customers are to recommend your business to a friend or colleague, expressed as a percentage.
How do you calculate Net Promoter Score?
The first step in calculating your Net Promoter Score is surveying your customers. Usually this is done on a quarterly or biannual basis. This survey contains one main question:
How likely is it that you would recommend us to a friend or colleague?
Customers respond on a scale of 0 to 10. The responses are separated into three categories:
- Detractors (0-6) → These are your unhappy customers. They have the power to spread negative word-of-mouth that could damage your brand.
- Passives (7-8) → These are your satisfied customers. But they’re not crazy about you.
- Promoters (9-10) → These people love you. They will continue buying your product. And they’ll even tell others about it. Their referrals are key to growth.
Here’s where it gets a little tricky — you don’t just simply find the average.
Rather, you take the percentage of promoters, then subtract the percentage of detractors. Hence, the net.
Visual learners, see the NPS formula below.
And if you want to manually calculate your NPS, there’s an app for that. Check out this free NPS Calculator.
What is a good Net Promoter Score?
Think about it this way:
Best possible NPS → 100% – 0% = 100%
Worst possible NPS → 0% – 100% = -100%
The higher your NPS, the better. A positive NPS means you have more promoters than detractors, while a negative NPS means you have more detractors than promoters.
Average Net Promoter Scores vary by industry. Here are some NPS industry benchmarks:
- Healthcare: 67
- B2B Service Providers: 60.5
- Technology: 60
- Education: 59.7
- Insurance: 42.6
- Consumer brands: 42.6
- Travel and hospitality: 38.9
- Telecom: 19.7
And here are some companies with high Net Promoter Scores:
- Amazon: 76
- Trader Joe’s: 73
- Costco: 71
- Apple: 71
Why has Net Promoter Score received criticism?
There’s been quite the debate over Net Promoter Score. One guy, Tim Keiningham, even conducted a study on NPS to prove that it isn’t actually an accurate predictor of growth or customer loyalty behavior. He claimed that:
“Based on the evidence we’ve compiled, it’s hard to imagine a scenario where Net Promoter would be classified as the superior metric.”
That’s a pretty bold statement. But other people seem to agree with him. Here are some of the most common criticisms of NPS:
- There’s significant bias, by default. The most satisfied customers are the most likely to respond to the survey.
- The scales are iffy. The 0 to 11 and -100% to 100% ranges are relatively wide, increasing the margin of error.
- The question could be better. It’s phrased positively, potentially skewing the results.
- Customers can’t predict the future. They don’t know if they’ll naturally have the opportunity to recommend a product.
- Customer Effort Score is a better predictor of customer loyalty.
Despite these criticisms, Net Promoter Score continues to prevail as one of the most popular customer service metrics. It is still used widely today by world-class customer service teams.
While it’s not perfect, NPS has proven to be an effective way to gauge customer loyalty and customer satisfaction. Looking at other customer service metrics, like first response time, time to resolution, and average handle time, along with Net Promoter Score will help you get a better understanding of the effectiveness of your team.
And if you want to improve your NPS, there are plenty of ways to do so — stay tuned for actionable tips.
Do you track your NPS? Why or why not? Reply in the comments below.