The NPS Formula: The Case For and Against

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    NPS Formula

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    You can’t call yourself a customer success professional if you have never worked with NPS before. The truth is that NPS surveys, while being used for decades, are just not good enough in the current fast changing market where competitive advantage is defined by real-time reaction. Let’s take a closer look at NPS and the NPS formula and the best alternative you can adopt in 2023.

    As per a recent research, 64.5% of SMBs and enterprises run NPS surveys today. While the NPS formula is quite ubiquitous there are inherent problems. Results are incomplete due to low response, skewed due to biases and lagging since the surveys are typically run on a quarterly basis at best. 

    Before diving into the specifics, let’s understand what the NPS formula is all about.

    What is the NPS Formula? 

    NPS is a single question survey that attempts to derive customer satisfaction from the product and service that was sold. The essence of the question asked is “how likely are you to recommend this product/service to others?” The response is a figure between 1 to 10, 1 being unlikely to recommend and 10 being highly likely to recommend. 

    The thought behind this approach is very smart – ask a single question vs a long and tedious survey with the expectation that people will be more inclined to respond. The question itself is intelligent and can help uncover a lot of insights about customer experience. If a responder is willing to refer the vendor to others, that naturally implies that they are getting value and are overall satisfied with the product/service. If they are not willing to refer to others then clearly we have an issue that needs further investigation, but it is bad news either way. 

    The NPS formula is calculated by two components of this method:

    • Promoters – Customers who are likely to recommend your product
    • Detractors – Customers who are unlikely to recommend your product

    Now, subtract the % of detractors from the % of promoters to get your NPS. 

    The NPS Formula
    The NPS Formula, Staircase AI

    It’s time for a quick example. Let’s assume that you have 100 responses, out of which 30 customers are promoters and 50 are detractors. So your Net Promoter Score is going to be 30%-50% = (-20).

    The score categorization goes as follows:

    • 0-6 – The Detractors
      These are bonafide detractors that you must address and lift up. They are not just likely to churn, but might be hurting your brand reputation.
    • 7-8 – The Passives
      Customers that fall in this group are not counted in the formula, but they may be candidates that can help you push your score up in the future, if you succeed in turning them into advocates.
    • 9-10 – The Promoters
      The promoters are your best bet for advocates, loyal customers who contribute to your brand reputation whom you should engage with for growth opportunities.

    While the NPS formula calculation is a straightforward one, you need to decide if you are going the Relational or Transactional way before getting started. Both serve a different purpose:

    • Relational NPS surveys are deployed periodically, usually on a quarterly basis. This helps feel the pulse and understand how they feel about your company in general- a general health indicator. With this approach, a trend or comparison of NPS results over time is possible. 
    • Transactional NPS surveys are dispatched after customer interactions, usually purchases and support calls. It’s used to understand customer satisfaction on a granular level and provide specific feedback. 

    There are also some best practices that should be followed for best results:

    1. Set the right expectations – Every NPS survey should be tied to a business outcome. For example, this can be the adoption of a new feature.
    2. Two questions only – Curb your urge to bombard customers with multiple questions. Start with your NPS rating question and follow up with an open-ended one.
    3. Don’t overdo it – Many B2B businesses also overwhelm their customers with NPS surveys. Watch the frequency to avoid survey fatigue.
    4. Try different outreach methods – Emailing surveys not producing the desired results? Try sending them out via text messages or in-app popups.

    Now that you know the ins and outs of the NPS formula, what should you aim for?

    What is a good NPS score? 

    Generally speaking, the NPS score can be anywhere between -100 and 100. So the higher your score, the better. However, your ideal score can vary from industry to industry. For example, Bain and Co. state that being in the 50 range means that your retail business is in a healthy state of growth with good upselling and cross-selling. Top percentile of successful businesses can see scores above 70.

    Here is a more detailed breakdown of NPS score ranges:

    • The fatal zone: -100 and 0 – Simply put, you don’t want to be here. This means that your customers are having a bad time with your product/service, are likely to churn, and even talk badly about their experience with you.
    • The mediocre zone:  1-30 – This zone is an acceptable one to be in, as you have more promoters than passives and detractors. But B2B businesses with these kinds of NPS scores have a lot of work to do to survive in 2023.
    • The OK zone: 31-50 – Companies that are performing decently on the user experience, support and customer success fronts with a healthy dose of promoters, are usually to be found in this tier. 
    • The growth zone: 51-70 – A company in this zone is highly invested in creating strong customer experiences. This results in big promoter groups that share their positive experiences within their private networks.
    • The elite zone: 71-100 – While possible in theory, very few businesses can make it to this zone. Even the top industry unicorns can find it hard to consistently touch these kinds of heights. Tesla scored 97 in 2020.

    All in all, NPS has been a very popular way of identifying promoters and detractors. But today’s fluctuating and demanding markets are exposing its flaws. The next section will cover the top blind spots B2B businesses have to cope with.

    Related: Top Customer Feedback Tools for 2023

    The NPS Formula is Flawed  

    Before continuing any further, I must clarify that NPS is still an important tool in your playbook, but it simply cannot serve as a stand-alone CS tactic anymore. There are too many variables and  inconsistencies in play.

    Let’s dive into the main blind spots. 

    • Low response rates – The sad truth about NPS surveys is that B2B businesses are getting response rates of less than 15% today. Some are simply too busy, others may be away on vacation, while some may not be in the same position anymore. This basically means that you are getting an incomplete and inaccurate picture that won’t really help you grow as a business.
    • Only the loud ones are heard – To make matters worse, you have to deal with skewed results. Responses are usually biased towards the respondents who feel the need to speak – either extremely happy customers or ones who are really frustrated with your product. Others try not to be too offensive. Objective and constructive inputs often get lost in translation.
    • Lagard indicator, Time limitations and constraints – Another key issue is that NPS surveys are rarely real time and sample the audience from time to time, sometimes months apart. This essentially means that not only the data is partial, but it is also outdated. The NPS response represents a specific point in time. For example, promoters can turn into detractors within a few days, something that an NPS survey often won’t be able to catch until the next survey

    While NPS surveys are pretty easy to send out, they become time-consuming when CS professionals start breaking down the fragmented, skewed and siloed data. You are actually looking at data from the past and using it to make decisions about the present and future. Pinpointing promoters and growth opportunities requires a real-time, proactive and unbiased approach in today’s economic climate.

    Related: CS Strategy: Identifying the Blind Spots

    AI and NPS surveys: A potent 1-2 punch

    Now that we have established that the NPS is not a silver bullet, how can you get the job done? Besides the “how likely are you to recommend our product to a friend?” question, NPS is also supposed to find answers to the following questions – loyalty, risk, opportunity – which it simply can’t. How can you supplement this reactive indicator to achieve sustainable growth? 

    The answer is simple – AI.

    The real shifts happen under the hood – The real feedback is already there in the communication – sentiment in emails, tickets, chats, calls and more can provide a real time indication and equivalent to the survey response. This analysis is not constrained by response rates (every message is analyzed), accuracy or frequency. 

    AI-driven customer intelligence solutions take out the guesswork from understanding stakeholders. They can break down and analyze customer interactions in real-time to help CS teams understand sentiment fluctuations, stakeholder relationship trends and eliminate the aforementioned blind spots. Simply put, detecting early signals is the name of the game today. 

    Then come the added benefits. The unbiased and accurate insights help create a better customer experience, while also automating cumbersome CS tasks and improving responsiveness for better relationship management. Everything becomes more efficient with the harvesting of communication data and AI-generated insights, both of which help businesses grow faster even with limited resources.

    Reactive vs Proactive

    Moving from 15% survey completion to 100% 

    With AI-powered scoring, you can achieve sustainable growth by analyzing 100% of your customers’ sentiment, relationship and engagement, compared to the common 15% average NPS response rate today.

    Surveys and NPS in particular are a useful tool for actively probing the customer base. However, in this day and age, relying only on this approach, and not adopting the capabilities AI and passive probing provide, is analogous to burying  your head in the sand. Todays’ competitive advantage is determined by how quickly and accurately a company can respond to their customer’s experience. Sticking with the old-way of doing things is equivalent to letting your competitors take the lead.