NPS Calculation: Everything You Need to Know
In the world of startups, Net Promoter Score (NPS) stands as a powerful tool that can determine whether a product has truly found its market fit. In this article, we will explore how NPS is calculated and how it can apply to your organization.
In this article, you will learn about:
- Net Promoter Score Calculation and Formula
- Why is Net Promoter Score important?
- How should Product managers utilize it?
- More NPS survey tools
What is Net Promoter Score?
Net Promoter Score (NPS) is a metric that measures customer loyalty and satisfaction. It helps businesses understand their overall customer sentiment. So how do we calculate NPS?
Explaining the NPS Formula
Calculation Steps
1. Ask the NPS Question:
To measure NPS, we ask "On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?" Responses can range from 0 (not at all likely) to 10 (extremely likely). This question serves as a litmus test for gauging customer sentiment and predicting their willingness to promote your offering.
2. Categorize Customer Responses:
Responses to the NPS question are grouped into three distinct categories:
- Promoters: Promoters are the superheroes of your customer base. These folks score you a dazzling 9 or 10, showing unwavering devotion and an eagerness to sing your praises. They are the fuel behind your growth, spreading positive word-of-mouth like wildfire.
- Passives: Passives fall in the middle. While they might not actively promote you, they're not grumbling either.
- Detractors: These are the tough nuts to crack, the ones who score you between 0 and 6. They might have encountered some issues or disappointments, and they're not shy about letting others know. They can put a damper on your reputation if left unaddressed.
3. Calculate the NPS Score:
Once the customers are categorized, the NPS score is calculated by subtracting the percentage of detractors from the percentage of promoters. The resulting score can range from -100 to +100. A positive score indicates a higher proportion of promoters, while a negative score suggests a higher proportion of detractors.
Sample Calculation Using Customer Responses:
Let's consider a hypothetical scenario where a company surveys 100 customers and receives the following responses:
- Promoters (scores 9 or 10): 60 customers
- Passives (scores 7 or 8): 20 customers
- Detractors (scores 0 to 6): 20 customers
To calculate the NPS score, we first determine the percentage of each group:
- Promoters: 60%
- Passives: 20%
- Detractors: 20%
Next, we subtract the percentage of detractors from the percentage of promoters:
NPS = Percentage of Promoters - Percentage of Detractors
NPS = 60% - 20%
NPS = 40%
In this example, the NPS score is 40, indicating a relatively positive sentiment among customers, with a higher proportion of promoters.
What is a good NPS Score?
A good Net Promoter Score can vary across industries and markets. In general, an NPS above 0 is considered positive, indicating that you have more promoters than detractors. A score above 50 is typically regarded as excellent, suggesting strong customer loyalty and satisfaction. However, it's important to note that the interpretation of NPS scores can differ depending on the industry and competitive landscape. Comparing your NPS to industry benchmarks or your own historical data can provide a more meaningful context for evaluating your score. Ultimately, the goal is to continually improve your NPS over time and strive for a score that outperforms your competitors.
Why Product Managers Should Care about NPS?
As a Product Manager, you're on a mission to find the rightful place for your product in the market. You want to ensure that your product or service is not only meeting but exceeding customer expectations. If you think Net Promoter Score is just another buzzword, you'd be terribly wrong. Net Promoter Score plays a huge part in your business and it directly indicates your Product-Market Fit.
What is Product-Market Fit(PMF)?
Product-market fit is the sweet spot where your product or service aligns perfectly with the needs and desires of your target market. It signifies that you have created something valuable and relevant that resonates with your customers.
Why NPS matters to PMF?
NPS provides you with a direct line of sight into customer satisfaction and loyalty. It gives you a clear signal of how well your product resonates with your audience. A high NPS is a strong indicator of product-market fit. When customers enthusiastically promote your offering and provide positive feedback, it shows that your product is hitting the mark and satisfying their needs. NPS acts as a compass, guiding startups toward the elusive goal of finding their place in the market.
NPS as a Key Performance Indicator (KPI):
When it comes to Key Performance Indicators (KPIs), NPS is a standout metric that should be on every Product Manager's radar. NPS serves as a powerful KPI that offers valuable insights into customer satisfaction and loyalty. A high NPS has three significant benefits:
1. Increased customer loyalty and retention:
If you are struggling with customer churn, now you have a solution. A high NPS indicates a higher level of customer loyalty. Satisfied customers are more likely to stick around, renew subscriptions, and make repeat purchases. According to a study by CustomerGauge, increasing NPS scores by just a few points can lead to a substantial increase in customer retention rates. By nurturing and retaining these loyal customers, startups can build a solid foundation for long-term success.
2. Positive word-of-mouth and referrals:
Promoters, the enthusiastic supporters of your product, become your most valuable marketing asset. They spread the word, recommend your product to friends and colleagues, and bring in new customers through organic, positive word-of-mouth. This leads to an expanded customer base without hefty marketing costs.
3. Enhanced brand reputation and trust:
When customers consistently have a positive experience with your product and become promoters, your brand's reputation soars. A high NPS signifies that customers trust your brand and consider it reliable and valuable. This fosters a positive perception in the market, attracting new customers and boosting your brand's overall reputation.
What follow-up questions to ask?
When we look further into the NPS survey, there are more details we can uncover. By asking different questions to different user groups, we can gather valuable insights and improve their product experience clinically.
1. Promoters: -"We'd love to understand the reasons behind your high score so that we can continue exceeding your expectations."
These are your loyal warriors, the ones who shout your praises from the rooftops. They love your product, and they're not shy about it. As a product manager, tapping into the feedback from these satisfied customers is like unlocking the vault of success.
2. Passives: -"We want to improve your experience. Is there anything specific we could do to improve your score?
Passives are sitting on the fence of customer sentiment. But don't underestimate their value. By delving into their feedback, you can uncover hidden gems of improvement.
3. Detractors: -"We apologize for your low response. Could you kindly share with us the reason why you wouldn't recommend our business to your friends and family?"
Detractors might be dissatisfied, disappointed, or simply unimpressed. But fear not! Instead of running from their criticism, face it head-on. Listen, learn, and turn their frowns upside down. By addressing their concerns, you can prove that your product is a force to be reckoned with.
Incorporating NPS into Product Development and Iteration:
By integrating NPS into your product development lifecycle, you can optimize your roadmap, prioritize features based on customer needs, and craft a product that makes a significant impact in the market.
Let NPS serve as your invaluable companion on this journey. Leverage its insights to fine-tune your product strategy, align it with customer expectations, and unlock new levels of success. With NPS by your side, you have the potential to become the hero your product deserves and make a lasting impact in the market.
More templates and tools
If you want to find your NPS for your business with in-app surveys, 1Flow offers some great tools. With 1Flow's NPS score survey tool, you can easily collect valuable feedback from your customers right within your app.
1Flow goes beyond NPS surveys, offering a range of templates and tools to help you supercharge your business growth. From customer satisfaction surveys to user onboarding flows, our extensive library equips you with the resources you need to excel at every touchpoint of the customer journey.
Ready to take your NPS game to the next level? Sign up for 1Flow today and witness the transformation in your customer experience and business success.
