If any B2B SaaS (Software as a Service) company, or any company for that matter, had to choose one metric that measures their performance among the dozens of metrics, it would be the NPS or the Net Promoter Score. Almost every SaaS B2B Company trusts the net promoter score to assess its profitability and success in the true sense.

Net Promoter Score: Everything You Need to Know

The Net Promoter Score is a powerful way to assess a customer or client’s happiness or satisfaction with a single question. It tracks the willingness of customers to recommend the product or service to their friends, relatives, or peers. It is one where customers evaluate their association with the brand on a scale of 1 to 10.

The NPS was developed in 2003 by Fred Reichheld of Bain & Company as a customer loyalty metric. The goal is to measure customer satisfaction in different industries. The Net Promoter Score is based on a solitary question. The premise is simple –

How likely are you to ask a friend/relative to check out the company/product/brand?

The range is from 0 to 10. 0 being least likely to recommend, and 10 being extremely likely to recommend.

So based on customers’ responses, we can classify them. There are three categories of people based on NPS scores.

Detractors: Respondents who give scores between 0 to 6. These people are unhappy with your product and are dissatisfied with it. They would not recommend it.

Passives: Respondents who give scores between 7 to 8. These respondents are ones who are not active promoters of the product. They don’t hate it, either. They are kind of ambivalent.

Promoters: Respondents who give scores between 9 to 10. These respondents are excited about the product and would be happy to recommend it to friends or family. These are ambassadors of the brand and will increase referrals, helping improve brand reputation.

The respondents, in this case, are whomever the customer or client refers the product to.

The NPS is a number calculated as the percentage of promoters minus the percentage of detractors

Net Promoter Score = % of Promoters – % of Detractors

A positive NPS is considered good. This means anything greater than 0 is good.

For example: If the percentage of detractors was 25%, the passives 50%, and the promoters 25%, the NPS would be zero.

However, if the detractors were 30%, the passives 30%, and the promoters 40%, the NPS would be 5.

The NPS is not a sign of percentage and is a whole number.

Why is the NPS Important?

Net Promoter Score is a metric of business growth. It is popular in all SaaS B2B companies. When the NPS of the company is high or non-negative, then customers are likely to be ambassadors. They promote your company and are mostly evangelists who will generate good word of mouth. A net promoter score generates a positive growth prospect and improves brand presence.

In general, NPS is considered a great way to understand customer sentiment around a product or brand.

A net promoter score is important because it helps companies-

• Understand why customers might be associated in the future or not with the company
• Ask follow-up questions to customers about why they gave a specific score
• Create internal benchmarks and KPIs (Key Performance Indicators) based on averages and industry specifics
• Establish a customer-centric mission by driving all employees and teams around customers
• Know what can be improved with customer success to improve net promoter scores
• Estimate the quality of customer service and prospects of retention
• Address problems in customer experience
• Measure customer loyalty and increase customer satisfaction
• Grow revenue through expansion modes like upsells and referrals

What is the average Net Promoter Score?

A net promoter score is a tool used by many organizations to present a picture of the growth potential and customer feedback. NPS can be tracked over time to get an idea of different positions.

The average net promoter score varies from sector to sector. The high-performing organizations have NPS scores between 45 and 80 positively. However, on an average, the NPS is 10 for an American company.

The NPS score can help understand the mood of the company and the reasons behind a specific score. Analyzing NPS will help reduce the number of detractors and passives and increase the number of promoters.

A bad NPS score is anything below 0 which shows that the company has more detractors than ambassadors. This needs to be measured against the industry average. If the industry average is -7 and the NPS score is -3, the score is not that bad.

In any case, a negative NPS score is a sign the business needs to buck up and enhance its customer satisfaction, bring down unhappy subscribers, and create more ambassadors.

Why does the NPS not work anymore

There is skepticism around the net promoter score due to the lack of scientific evidence on its effectiveness in ascertaining customer satisfaction. Many leaders claim that the model is too simple to get a definite answer or outcome. They feel the NPS score does not measure customer behavior. It does not give a complete picture of the state of the company.

For instance: A customer can say he will promote the product in the NPS survey. What is the guarantee he will actually do that? It does not provide proof of practice in any manner. One customer can say that he will promote the brand in the survey and not actually recommend it to anyone.

Also, the recommendation may not always be fruitful. For example: if a customer recommends a product to a friend, there is no guarantee the friend will pick the product. It is just good word of mouth. However, it does not have the power to coerce or change the decision or influence the choice.

This way, there is no true influence in the matter. The NPS is also useful in very few markets with a lot of competition.

If there is very little competition in a space, there are fewer chances of recommendations or word-of-mouth publicity working.

Another aspect that critics often consider is how the only sample size counted for NPS surveys are customers. In many cases, non-customers may be the ones who are generating bad word of mouth.

Here are some other arguments why the NPS is not to be considered as the core metric-

Unreliable

In many cases, it may not be true that customers would recommend your product. In such times, expecting them to do something cause you to imagine it is unreliable. You need to base your predictions on what has happened and what might happen. It needs to be a blend of both as against just wishes. This adds a lot of bias and self-feelings in the survey. This overall process makes the results unreliable.

Lack of reasons

An NPS survey can tell you who is unhappy and who is happy. What percentage of customers are promoters, passives, or detractors? However, these insights are of no use if you do not know the reasons why the customers are not happy. You only get quantitative details but not why someone is happy with the product. This leads to a lack of understanding of the depth or rationale behind a customer being a promoter, detractor, or passive participant in the NPS survey.

Complex to put into practice

The NPS is a survey that can be complex for some customers. They are a bunch of questions that are asked to customers. Though NPS scores traditionally ask for one single question, a lot of companies are adding questions to raise the complexity of the scores. This makes the whole process complex and difficult to measure.

The Passive Problem

NPS accounts for only the promoters and detractors while counting the score. This leads to no importance being given to passive customers. If a customer in the passive segment feels that his ambivalence to the product could count as ‘not recommending,’ it is reduced NPS scores for the customer. This is why the substantial difference between the two opposing ends does not seem logical when the passive users are not counted.

Accounting for customer life cycle

NPS scores depend on where the customer is based in his customer life cycle. This will lead to skewed results since the customer is in the discovery stage or adoption stage. In case the customer is still discovering the product- chances are they would be happy with it but not entirely recommend it. They may not have yet seen the product’s value and promise. Since NPS measures the willingness to recommend, the customers may not be in the zone yet. If you ask customers to recommend the product to others at the initial part, they will simply not be satisfied. It might be something in the future.

All this suggests that the customer experience metric may not be highly reliable. This leads to unclear results.

Alternate Solutions to the NPS

While we cannot dismiss the effectiveness and acceptance of NPS, here are some alternate solutions to the process.

You can ask a similar question- “have you recommended us to your friends or family?’’

You can understand your customers better and notice if they have any problems. This will become much easier to improve their experience.

Another way to ask the NPS question is by pairing it with another one. Ask the customer two questions. The first is the popular NPS question, where they express their willingness from 1 to 10. The second can be a free text box where customers can voice their opinion. This can be free space to write whatever they feel about the product or brand. They can share what they liked and did not.

Other sources of customer feedback include social media, review sites, and customer interviews. All user-generated feedback is voluntary and highly helpful in getting a true background of the product and user.

Choosing other metrics to measure customer satisfaction such as renewal rates, time to value, and churn will also help. Looking at metrics like expansion revenue, customer expansion, increased cross-sells and upsells is also a great way to understand the general sentiment around the product. Other scoring systems like customer satisfaction score, customer effort score, and customer health index are great way to understand customer satisfaction and experience.

Bottom Line

The NPS is not the main or primary metric that needs to be considered. It can be considered in association with other essential questions. There is a need for motivational questioning and people management.

The underlying logic is how the NPS should be simple for every stakeholder to understand and interpret. Despite the NPS having some criticism, it cannot be ignored for its effectiveness. You can simply ask customers why they chose a specific rating.

NPS helps you track how well the product is performing with customers and segment users based on that.

However, the NPS also gives you an idea of how to improve your customer satisfaction scores and boost overall customer retention.

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