Understanding & Interpreting NPS for Business Success

Understanding your customers is crucial. One powerful tool that companies use to measure customer loyalty and predict growth is the Net Promoter Score, or NPS.  While this tool is widely used, it’s not always well understood, especially when it comes to interpreting NPS.

Let’s explore what NPS is, the value it can bring to your company, and how to interpret it correctly to avoid common pitfalls.

NPS is a metric used to gauge customer loyalty by asking a simple question: “On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?” Respondents are categorized as Promoters (9-10), Passives (7-8), or Detractors (0-6). Your NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

The widespread adoption of NPS at the C-suite level, in large part due to the metric’s simplicity, has prompted companies across nearly all industries to incorporate it as part of their customer experience measurement. NPS can provide value in these key areas:

Predictive Power: NPS is a strong indicator of customer loyalty, which directly correlates with business growth. Companies with higher scores tend to have more loyal customers, leading to repeat business and positive word-of-mouth.

Benchmarking Tool: As a widely used metric, NPS allows you to compare your performance against competitors and industry standards, providing valuable insights into where you stand in the market.

Identifying Areas for Improvement: NPS feedback can help identify areas for improvement, allowing you to make targeted changes that can drive up customer satisfaction and loyalty.

However, to get the most out of NPS insights, it’s important to not just recognize the value NPS can provide, but also what it can’t. NPS isn’t designed to be a single source of truth for customer satisfaction and loyalty. It, or any customer satisfaction metric on its own, may tell you something needs improvement, but it won’t tell you why, how, or what to do about it.

Finding the “why” behind your score helps you avoid common NPS interpretation mistakes and ensure you’re channeling resources into the right initiatives to fix any issues it uncovers.

Context is Key

• Don’t Overlook the “Why”: Your NPS score alone doesn’t tell you why customers feel the way they do. It’s important to pair the score with open-ended questions to understand the reasons behind the numbers. For example, ask follow-up questions like, “What’s the main reason for your score?” to gain deeper insights.
• Examine Key Drivers: It’s important to understand the key drivers behind your score so you can make meaningful changes. You might consider running a key driver analysis to get at the heart of dissatisfaction and answer questions such as:
  • Are customers happy with specific features of your product?
  • How well do they rate each channel experience?
  • Which points in the customer journey have the biggest impact?
  • Are they satisfied with the service delivered via your customer service lines?
• Industry Benchmarks: Different industries have varying average NPS scores. A score of 30 might be excellent in one industry but mediocre in another. Always compare your score to relevant industry benchmarks and competitors when interpreting.

Avoid Overreacting to Detractors

• Understand the Distribution: It’s easy to focus too much on Detractors, but understanding the distribution of all responses (Promoters, Passives, and Detractors) is crucial. An overemphasis on converting Detractors can lead to neglect in growing your Promoters, who are your most loyal customers.
• Long-Term Trends: Look at long-term trends rather than reacting to a single low score. A sudden drop could be due to a temporary or widespread industry issue rather than a systemic problem within your company.

Don’t Use NPS in Isolation

• Integrate with Other Metrics: NPS is powerful, but it should be used alongside other customer experience (CX) metrics like Customer Satisfaction (CSAT) and Customer Effort Score (CES). Together, these metrics provide a fuller picture of customer sentiment and behavior.
• Cross Reference with Other Analytics: You should also cross reference NPS with other CX journey analytics, operational metrics, and outside sources such as competitive intelligence and social listening insights to build context behind your score.

Brand A tracks NPS data on their brand and key competitors, particularly their nemesis, Brand B. At face value, with an identical NPS of 50, the two brands appear to be on par with each other. However, when we look at the details behind each score, we see they are not quite the same.

Let’s assume these two brands are fierce competitors. The fact that 2 out of every 10 Brand A customers are detractors (noted in red) compared to 1 out of 10 Brand B customers, may warrant further investigation for Brand A’s marketing team, including questions like:

• What’s driving lower NPS ratings among detractors?
• Has the proportion of Brand A detractors increased, decreased, or remained the same over time?
• What’s the distribution of specific NPS ratings among detractors? Are ratings concentrated around 6’s & 5’s or at the bottom around 1’s & 0’s (or some other combination)?

Without digging deeper to truly understand the story going on behind their NPS, Brand A might overlook an opportunity to improve their overall CX and strengthen their competitive position against Brand B.

Continuing our story about Brand A, let’s assume that they took heed after analyzing their NPS, identified specific pain points among detractors, and put strategies in place to improve these sub-par customer experiences. In the scenario below, time has passed, and a second wave of their NPS tracking is completed.

If Brand A is only interested in achieving a higher NPS, they would be disappointed when their score remained the same at 50. However, their goal was to alleviate specific CX pain points that they knew were inhibiting customers’ likelihood to recommend their brand to others.

The data from Wave 2 shows that they successfully cut the proportion of detractors in half (from 20% in Wave 1 to 10% in Wave 2). By cross referencing other analytics and data, Brand A can then identify a strategy to maintain promoters (noted in green), and pinpoint opportunities to convert passives (noted in yellow) to promoters.

NPS is more than just a number—it’s a powerful tool that can help companies drive customer loyalty and business growth if used and interpreted correctly. However, it’s important to keep in mind that NPS is a valuable component of a strong customer experience management system.

Like any other metric you use as part of your CX program, make sure you’re using and interpreting NPS correctly to drive action by creating and supporting a strong understanding of your customers’ attitudes and behavior.  Because, ultimately, the value of any metric you use lies in its ability to serve as a decision guide, helping you facilitate the development of a customer-centric culture.