The Net Promoter Score (short: NPS) or Promoter Overhang is a key figure in the area of customer satisfaction. With the help of a short customer survey, it provides information about the loyalty of customers to a company or organization.
What is the Net Promoter Score?
The Net Promoter Score is based on the question of how likely it is that customers would recommend a product or service to a third person (a friend or colleague). The NPS bundles the results of this survey into one figure and thus provides an indicator of customer loyalty. Due to the simplicity of the data collection as well as the generalistic question regarding a company or a brand, the NPS is widely used by companies worldwide.
How is the Net Promoter Score data collected?
During a customer survey, which usually lasts one to two minutes, a group of customers is asked the question:
“How likely is it that you would recommend this product/company to a friend or colleague?”
Customers have the option of entering their answer on a scale of 1 to 10, where 1 stands for unlikely and 10 for very likely. In this way, a general mood can be captured with a simple question.
How is the Net Promoter Score calculated?
The customers participating in the survey are then divided into three groups based on their response:
Detractors
Respondents with avalue between 0 and 6 are called detractors. They are generally dissatisfied with the product or the company. You would advise friends and relatives not to become a customer or to use the service. In addition, there is a risk of negative ratings and reviews and even migration to competitor companies.
Indifferents
Respondents with avalue of 7 or 8 are called indifferents. They are neither positive nor negative about the company or the product and would probably refrain from recommending it. Here, there is a risk of possible churn should the competition offer a better product or a more attractive price. Indifferents play a minor role in the subsequent calculation of the Net Promoter Score.
Promoter
Respondents with avalue from 9 or 10 are called promoters. They are most satisfied with the product or company and would make a recommendation. Active recruitment of new customers is also not excluded. Here, there is the possibility of increased added value through more intensive purchasing behavior or stronger brand loyalty.
The Net Promoter Score is now calculated by offsetting the percentages of promoters and detractors. For this purpose, the share of detractors is subtracted from the share of promoters; indifferences are not included here and are primarily used only to determine the promoter and detractor shares.
Example 1
A company conducts a survey of a group of 100 customers and obtains the following data: 25 detractors, 10 indifferents, and 65 promoters. The Net Promoter Score is therefore calculated as follows:
NPS = proportion of promoters – proportion of detractors = 65% – 25% = 40
Example 2
A company conducts a survey of a group of 200 customers and obtains the following data: 62 detractors, 26 indifferents, and 112 promoters. The Net Promoter Score is therefore calculated as follows:
NPS = proportion of promoters – proportion of detractors = (112/200 – 62/200)*100 = 56% – 31% = 25
How is the Net Promoter Score evaluated?
The way the NPC is calculated results in theoretically possible maximum and minimum values of 100 and -100. However, these are almost impossible to achieve. In general, it can be said that a value above 0 can be considered positive, since a company consequently has more promoters than detractors. Values above 50 are already described as very good, values above 70 as excellent. However, depending on the industry, these values are very unlikely.
Due to the fact that the Net Promoter Score only includes one question in the calculation, it can be useful to use the development of the NPS over a longer period of time instead of each individual NPS value for the analysis of customer satisfaction.
