Net Promote Score: what it is and how to calculate it
Net Promoter Score, or NPS, is a tool used by eCommerce merchants to measure the likelihood of their businesses being recommended by their customers to their personal or professional peers.
The NPS directly measures the loyalty of customers to an eCommerce brand. The scores are obtained from surveys that typically contain questions like, "What is the likelihood of you recommending this product or service to a colleague or friend?" The customers then give a rating ranging from 1 (least likely) to 10 (very likely), and the NPS is calculated based on the results.
The value for NPS is usually a number that is directly proportional to the willingness of your customer to promote your brand or service. In other words, the higher the NPS value, the more likely a customer is to promote your business without expecting anything in return. It requires determining a promoter score indicating the people that will promote your business, a detractor score indicating the people that will not support your business and a passive score indicating the people that are indifferent.
The Importance of NPS
There are several reasons why calculating NPS is important for eCommerce brands, including the following:
- Measure customer loyalty: Loyal and repeat customers are a great way to determine the success of an eCommerce brand and figure out if you need to make changes.
- Target demographic: A higher promoter to detractor ratio lets you know that your product is being well received by your desired population.
- Room for Improvement: NPS helps you identify areas in your business or product that need improving. When the number of detractors far outweighs that of the promoters or even the passives, you know changes need to be made.
- Customer Feedback: Since most NPS surveys are easy to complete, it provides a quick, indirect method for getting customer feedback.
Before you begin calculating your NPS, you need to send out an online poll. The results for this poll are used to separate your customers into three groups: promoters, passives and detractors. Let's say you sent out a poll with the following question:
"On a scale of 1-10, how likely is it that you would recommend *product name* to your family, friends, and colleagues?"
The result from this poll would help you classify your customers as follows:
- Customers who answered 9 or 10 are promoters
- Customers who answered 7 and 8 are passives
- Customers who answered 0-6 are detractors
The highest possible NPS value is 100 (meaning all your customers are promoters). Conversely, the lowest possible score is -100 (which occurs if all your customers are detractors).
Let's take a look at the role of promoters, passives, and detractors in interpreting NPS data.
A promoter is a customer that is most likely to actively recommend your business to others. You need to identify your promoters and keep them happy as they influence the success of your business.
This is a neutral group you can easily tip towards promoting your products. They don't dislike your products or services, but they wouldn't go out of their way to recommend them. It is important to identify the members of this group because they are likely to switch to another business if you can't convert them.
Detractors are least likely to recommend your business to potential customers and might even go out their way to leave a negative review. It's advisable to identify this group and keep them happy within the realistic means of your business.
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How to calculate Net Promoter Score
1. Determine the actual number of promoters, passives and detractors.
The first step is to divide the results into their respective groups. For a hypothetical, let's say you received 1500 respondents to your poll and these are the results:
● Promoters: 950
● Passives: 400
● Detractors: 150
The reason we divide them is that we need to calculate the percentages separately.
2. Calculate the percentages.
All you have to do is divide the number of respondents in each group by the total number of respondents, then multiply that value by 100 to get the percentage. Following our hypothetical case, here's what the percentages of each group would be.
Percentage of Promoters
Percentage of Passives
Percentage of Detractors
Now that you've gotten the individual percentages, you can figure out the NPS.
3. Apply the Net Promoter Score formula.
The NPS formula is the percentage of detractors subtracted from the percentage of promoters. The mathematical formula is: NPS = % promoters - % detractors.
So, using the values above, the company's NPS would be 63.3 - 10, which comes out to 53.3.
What Is A Good or Bad NPS?
There isn't one universal benchmark to decide if an NPS is good or bad; the results vary depending on the industry. However, there are some general guidelines you can rely on. Globally, a score above 50 is considered good, but hard to achieve.
A solid method is to compare your score with the NPS scores of your competitors and the average NPS in your industry. Say you have an NPS of 45 and your competitors/industry average is about 30. The chances of your customers sticking with you are much higher than having a score of 65 with an industry or competitor average score of 70.
What to Do If Your Net Promoter Score Is "Bad"
If your NPS is low relative to your competitors, you should focus on improving. You can do this by:
● Asking promoters what they loved about your business
● Asking detractors what they disliked and how you could improve
● Improving customer service
● Encouraging promoters to share their positive experiences on social media
● Monitoring the fluctuations in your NPS frequently
NPS is more than just data. It's a tool that you can use to better your business.
What To Do If Your Net Promoter Score Is "Good"
If your NPS is higher than the average competitors, that's great, but you need to figure out how to keep it that way. Again, turn to your promoters and detractors to figure out what's working and what isn't. Don't forget about your passives either. Consider asking them what you could do to improve your services and convert them into customers.
NPS data is collected by conducting NPS surveys. Stamped.io is an online tool that facilitates the process of setting up an NPS survey, making it easier than ever before.
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The relevance of NPS in the eCommerce setting cannot be emphasized enough. Not only does it tell you how well you're doing in terms of customer satisfaction, but it also lets you discover aspects of your business that need improvement. Elevate your business by using Stamped.io to calculate your NPS score today!