More on NPS

My latest article on NPS sparkled some interesting conversations on this metric that I believe are worth sharing:

NPS has or has not the % sign?

From a strictly mathematical point of view, we should use the percentage sign because when we subtract two percentage numbers, the result must be represented as a percentage or as a fraction number. For example, if we have 50% promoters and 30% detractors, the NPS calculation will be 50% — 30% = 0.5–0.3 = 0.2. That is, the NPS is 0.2 or 20%. From a mathematical point of view, saying that the NPS is 20 is not correct, because 0.5–0.3 is not equal to 20, is equal to 0.2, or 20%.

However, a bit of caution is required. If your NPS is 20%, that doesn’t necessarily mean that 20% of the interviewed customers are promoters. It means that at least 20% are promoters. It can be:

• 20% promoters + 0% detractors + 80% neutral
• 23% promoters + 3% detractors + 74% neutral
• 60% promoters + 40% detractors + 0% neutral
• any other combination

The same goes for a negative NPS. A -16% NPS means that at least 16% of the interviewed customers are detractors. It can be:

• 16% detractors + 0% promoters + 84% neutral
• 19% detractors + 3% promoters + 78% neutral
• 58% detractors + 42% promoters + 0% neutral
• any other combination

In the article The One Number You Need to Grow by Fred Reichheld where the concept of net promoters and its correlation to business growth was first presented in December 2003, all charts show net promoters as percentages, not integers.

Most recently many NPS reports from Bain & Company, Satmetrix Systems, and even from Fred Reichheld, who conjointly own the NPS trademark, present the metric as integers and not as percentages.

So I believe we can safely say that it doesn’t matter if we use or don’t use a % sign when presenting the NPS number. However, regardless of whether or not we use the % symbol, what really matters the most is understanding why promoters, detractors, and neutrals gave us this rating.

How to manage NPS?

During my coaching sessions, one metric my coachees normally bring to discuss is NPS. How to measure? How to manage it? It is common to see targets and KRs set for NPS, like “we will have an NPS of 20 (or 20%) by the end of the quarter”. I advise against using NPS as a target because:

• NPS is a lagging indicator: as I explained earlier, there are two types of metrics, lagging indicators, which are indicators that denote consequences (revenue, profit, churn, number of customers, NPS), and leading indicators, which are indicators that denote causes. A good example of a leading indicator is the customer’s engagement with a product, which is the cause of a lower churn and a higher NPS. So, instead of having a target for NPS or churn, we should aim for a customer engagement target.
• NPS is an induced and subjective metric: in order to measure NPS, you need to disrupt your customer’s journey to ask her if she would refer you/your product to a friend. The simple fact that you are disrupting her journey already interferes with the measurement. To add to this, this is a very subjective question. I may refer to this friend, because I know he likes this kind of product, but not to this other friend because the product doesn’t make sense to her.

That doesn’t mean we should not measure NPS. We should because the act of measuring and discussing it provides many useful insights to help us improve our product.

Summing up

• When presenting the NPS metric, it doesn’t matter if we use the % symbol or not. What really matters the most is understanding why promoters, detractors, and neutrals gave us this rating.
• NPS is not a metric to be set as a target because it is a lagging indicator and it is an induced and subjective metric.
• We should measure NPS because the act of measuring and discussing it provides many useful insights to help us improve our product.

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