Introduced by Frederick Reichheld in his 2003 Harvard Business Review article, “The One Number You Need to Grow,” the Net Promoter Score (NPS) has since become one of the most widely used customer experience (CX) metrics. It’s both simple and correlates strongly with business growth, and these qualities have made it a staple for companies aiming to boost customer loyalty. A 2020 study by the Harvard Business Review, for instance, shows that businesses with high NPS scores grow revenue 2.5 times faster than their competitors.
Findings like the above highlight that a loyal customer base is more than just a feel-good metric—it’s a powerful driver of profitability. But how exactly does NPS work, and why does it matter for your business? Let’s take a closer look.
What Is NPS and How Is It Calculated?
At its core, NPS measures customer advocacy. It’s based on a single, deceptively straightforward question: “How likely are you to recommend [Company X] to a friend or colleague?” Interestingly, over the course of his research, Frederick Reichheld found this question to be the most effective means of predicting word-of-mouth recommendations and repeat business, as opposed to other questions like “How satisfied are you with your experience?” or “Do you intend to come back to this business?”. Reichheld also suggests asking respondents why they gave that answer.
Customers respond on a 0 to 10 scale, and their answers categorise them into three groups:
● Promoters (9-10): These are your brand advocates—loyal customers who are highly likely to recommend your business to others.
● Passives (7-8): These customers have a neutral view of your business; they are satisfied but not enthusiastic enough to actively promote your brand.
● Detractors (0-6): These are dissatisfied customers who may spread negative word-of-mouth and potentially harm your reputation.
The NPS formula is straightforward:
NPS = % Promoters – % Detractors
This means that if 60% of your respondents are Promoters and 20% are Detractors, your NPS would be 40. Your score can give your business a clear indicator of how well you’re encouraging customer loyalty.
Many businesses use a customer experience management platform to track Net Promoter Score (NPS) and other key CX metrics. These platforms help collect, analyse, and respond to customer feedback at scale, making it easier to measure customer loyalty and identify areas for improvement.
Why NPS Is a Strong Indicator of Business Growth
Customer loyalty has major implications for a company’s long-term profitability. Companies with high NPS scores tend to experience faster revenue growth because loyal customers spend more, stay longer, and bring in new business through referrals. This effect is particularly evident in subscription-based models and B2B industries, where strong client relationships directly impact recurring revenue.
Research supports this link: the London School of Economics, for one, has found that a 7-point NPS increase can raise revenue by 1%. The logic is simple—when customers enthusiastically recommend a business, they expand its customer base at no additional cost. Take Tesla, to start with. In 2023, it was reported to have achieved an NPS score of 97, one of the highest ever recorded and the highest in the automotive industry. The company’s strong word-of-mouth marketing, fuelled by loyal advocates, significantly contributed to its rapid market growth at that time.
Common Misconceptions about NPS
While NPS is a valuable tool, it is often misunderstood or misapplied. Here’s an in-depth look at some of the most common misconceptions \ surrounding NPS:
NPS as a Measure of Customer Satisfaction
NPS measures advocacy and willingness to recommend, which is not the same as overall satisfaction. A customer may be satisfied but still unwilling to recommend your business due to factors like pricing, competition, or personal preference.
The Role of Passives Ignored
Another challenge is that Passives (those who score 7–8) are ignored in the NPS calculation. As a result, many companies overlook their feedback. However, Passives can have a significant impact on your overall NPS. Since Passives are on the cusp, focusing on them can be a quick win—it’s often easier to convert a 7 or 8 into a 9 (a Promoter) than to turn a Detractor around. On the flip side, neglecting Passives risks pushing them into Detractor territory, which would negatively affect your score.
An NPS Program is Time-Consuming and Expensive
Some organisations hesitate to implement an NPS program, fearing they are time-consuming and costly. However, with the right CX experts, feedback partner and tools, it’s possible to efficiently roll out an NPS program and gather valuable insights significantly easily. The rise of automation and AI stands to make this process even easier for organisations.
NPS Benchmarks: What Is a Good Score?
An NPS score is even more meaningful when compared to industry benchmarks. What constitutes a “good” NPS varies depending on the sector, business model, and customer expectations. For example, companies in the software and technology industries tend to have higher NPS scores than those in utilities or financial services, where customer trust and satisfaction can be harder to maintain.
To illustrate further: in B2B markets, the average NPS score hovers around 30, with anything above 50 considered excellent. Research from a leading global market research firm has indicated that service-based companies, professional firms, and high-tech providers often achieve NPS scores of 30-50, while manufacturing and logistics firms may fall between 20 and 30. In contrast, B2C industries such as retail, hospitality, and e-commerce tend to see higher NPS scores, often ranging between 50 and 70. This is because direct consumer engagement tends to create stronger emotional connections. Leading brand Apple has been reported to have NPS scores as high as 72, which far exceed the consumer electronics industry average.
The key is to remember that raw NPS numbers are not the sole indicator of success. Your company’s score should always be analysed alongside customer feedback trends (is it improving or decreasing?) industry positioning, and competitor benchmarks. If your business has an NPS of 40 in a sector where the industry average is 20, for one, then it’s performing exceptionally well, even though 40 might be considered mediocre in other industries.
How to Use NPS to Improve Customer Experience
Collecting NPS data is just the beginning—what your company does with the insights is what truly matters. The most effective companies act on their NPS results in the following ways:
Segmenting Feedback
Promoters, Passives, and Detractors each have different expectations and pain points, so your business should tailor its response to each of these groups accordingly. You might encourage promoters to leave public reviews or participate in referral programmes. Meanwhile, it helps to immediately follow up on and resolve the concerns of Detractors to alleviate frustrations and rebuild trust.
Closing the Loop
Addressing complaints efficiently not only prevents churn but can turn dissatisfied customers into loyal advocates. A critical part of this process is closing the feedback loop—letting customers know that their input has been heard and demonstrating concrete actions taken based on their responses. When customers see that their feedback leads to real changes, they’re more likely to reward your business with their trust and loyalty.
American Express is one major success story in this area, as the company expressly integrated NPS into its customer feedback systems in the interest of understanding customer sentiments and acting on them swiftly. Its commitment to exceptional customer service—and particularly to resolving issues as soon as possible—is reported to have helped it boost its customer retention rates by as much as 22% over a three-year period.
Supplementing NPS with Other Metrics
Other customer experience metrics you can use to complement NPS include Customer Satisfaction Score (CSAT) and Customer Effort Score (CES). While NPS measures advocacy, CSAT evaluates immediate satisfaction, and CES assesses the ease of interactions. So choosing which metric you use at a touchpoint can make the customer journey comprehensive. Using these metrics together gives you a comprehensive view of the customer journey and experience and empowers you to make data-driven improvements.
Make NPS Work for Your Business
The Net Promoter Score (NPS) is a valuable indicator of customer loyalty, but its real impact depends on how businesses interpret and act on the data. Simply measuring NPS is not enough—your company needs to engage with customers, address concerns, and use insights to enhance the overall experience. Once you leverage NPS effectively, your company will enjoy stronger customer relationships and more sustainable long-term growth.
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