Making Sense of NPS

“NPS Everything” proclaims Bessemer’s 2017 State of the Cloud Report1 when discussing some of the top trends for the SaaS space. Cloud software companies, and businesses of all types are increasingly relying on the Net Promoter Scores as a key indicator of their customer satisfaction and growth potential. Over two-thirds of Fortune 1000 companies currently use NPS in one form or another as part of their customer feedback programs2.

Yet many companies are still trying to figure out the best way to capture a reliable NPS measurement, and most importantly what to do once they have that measurement. The best metrics in the world don’t provide much value if they cannot be made actionable. Although NPS includes its own ‘closed loop’ follow-up methodology there are a number of ways that SaaS companies can use NPS data to provide deeper insights into their customers and their products.

This guide covers NPS basics, how SaaS companies can effectively collect rolling NPS data, and best practices for deriving actionable insights from that data.

The Basics: What is NPS?

Net Promoter Score, or NPS as it is known, is a simple one (sometimes two) question customer satisfaction survey that was developed jointly by Fred Reichheld, Bain & Company, and Satmetrix. An NPS survey asks respondents to rate whether they would recommend a product or service to friends or coworkers on an 11-point scale from 0 to 10.

The responses are segmented into detractors (scores of 0 to 6), passives (scores of 7 – 8), and promoters (scores of 9 – 10). An overall NPS score is calculated by subtracting the percentage of detractors from the percentage of promoters to return a single numerical score from -100 (everyone is a detractor) to 100 (everyone is a promoter).

Why NPS?

NPS has grown in popularity for two important reasons. The first is that it provides a clear quantitative measurement — a score — of something that is traditionally very hard to measure. Customer satisfaction is tremendously important to measure. It is a leading indicator for all sorts of financial outcomes. However, it is fundamentally a qualitative measurement that is captured in lots of different ways. This can lead to difficulty in benchmarking — either against an industry or even within an organization. NPS provides a simple, consistent methodology that is widely adopted for quantifying customer sentiment. The measurement is easily understood, and easily benchmarked to track performance over time.

The second reason for NPS’s popularity is its power as an indicator of future growth. The single question posed in the NPS survey: “Would you recommend…” captures not just positive sentiment, but evangelism. A company’s promoters aren’t just happy, but are also willing to spread the word about a particular product or service. The more evangelists a product has, the more likely it is to grow. Therefore, the NPS score in theory not only indicates the likelihood of customer retention, but also the likelihood of customer growth. In practice, the correlation between NPS score and growth has not been fully proven, but the idea has already driven significant adoption. NPS is now a major metric used across product teams and customer success teams and is a fixture of many board presentations.

Delivering NPS

Ok, so NPS is a good, simple metric that all product teams should capture. That’s simple enough. However, there are some challenges and questions that can arise when beginning an NPS program. Questions such as “Which users should I target? Should I survey my user base all at once? How should I collect feedback? How often should I run surveys?” The answers to these questions can have a significant impact not only on your response rate, but on the scores themselves.

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