Has a “perfect” customer ever left you?
This customer had it all. They checked all the right boxes (except perhaps a low NPS Score), they loved your product and they were excited to start working with you.
Then one day, they cancel their account and contract. It feels like it came out of nowhere.
In hindsight, you can see that they weren’t using the product as much as they should have and they clearly weren’t happy with it. The issue with hindsight is that it’s always 20/20.
The better question is how you could have known that they were going to cancel AHEAD of time? This would have given you time to talk to this customer and figure out what is wrong.
To do that, we can look at a new metric that is designed to answer these kinds of questions.
NPS is a great metric for measuring customer loyalty and satisfaction. You can use it to understand how much your users like (or love) your product at as a whole and even how much they like specific features.
There’s a lot of hype around this metric and while I don’t think it is the “ultimate” metric, you should still track it. Let’s start by understanding what this metric is and how you calculate it.
What is the NPS Score and How Do You Calculate it?
To start collecting data for the NPS Score, you ask your users 1 question:
“How likely is it that you would recommend our company/product/service to a friend or colleague?”
Users will then answer by providing a number from 0-10. The higher their number, the more likely they are to recommend your company or product.
The calculation of NPS though is a little more involved than a 0-10 scale.
You start by grouping users into 3 categories:
- Detractors: anyone who gave a score lower than 6.
- Passives: anyone who gave a score of 7 or 8.
- Promoters: anyone who gave a score of 9 or 10.
The equation for NPS is as follows:
NPS = % Promoters – % Detractors.
If you’re confused at this point, don’t worry. This is normal. Let’s use real numbers to understand how this would look like in real life.
Let’s imagine that you had 100 submissions or responses to our NPS question. After tallying up the data, this is the break down that we get into our 3 categories:
- 25 Detractors or 25% of 100 submissions
- 25 Passives or 40% of 100 submissions
- 50 Promoters or 50% of 100 submissions
Let’s now throw numbers into our equation and subtract the percent of detractors from the percent of promoters.
25 (NPS Score) = 50% (promoters) – 25% (detractors)
NPS scores are always provided without any percentages and just as numbers. In our example, we have an NPS score of 25.
Is 25 a good NPS score? That depends on your industry.
Delighted has a handy benchmark tool to understand how you compare to similar companies in your industry.
25 is a pretty close to the average of 30 in the “Fast Food” industry but is abysmal low for the “Software Industry”.
Now that you know how to calculate NPS, we can look at why some people love this metric so much. Personally, I don’t think this is the “ultimate” metric but it is a solid addition to your existing toolbox of metrics and data strategy.
Benefits of Using NPS
I have seen big claims around NPS like “strong predictor of growth” and “companies that achieve long-term profitable growth—have Net Promoter Scores (NPS) two times higher than the average company”.
Recently, we seen more studies debunk the some of the strong claims made by the creators of NPS. In short, I think NPS is a great metric that you should use but I don’t think it should be your ONLY metric or that you should look at it as your ONLY metric for predicting growth.
NPS is a key part of your critical KPIs that give you a complete picture of what is going on in your business.
There are, however, clear benefits to using NPS especially for software companies.
Benefit 1: Objective Measure for Product Performance
This benefit was echo by Jason Lemkin, a venture capitalist. He talks about having an objective metric that everyone accepts instead of letting opinions guide product development and product analytics.
“This is my favorite NPS “feature”. Different teams and different executives can have heated debates on your product quality. Engineering thinks it’s good enough. Customer Success thinks everything has to improve – now. Or we’ll lose all our customers. Sales thinks we need 3-4 more features to win deals. Who’s right? NPS is. It’s the voice of the customer. If you have a High NPS score, you’re doing something right here, no matter the feature gaps or other issues. If it’s low — take action, my friends. Stop being so proud of yourself. Your customers aren’t. This is so, so important.” – Jason Lemkin
Benefit 2: Predicting Negative Churn by Identifying Unhappy Users
There’s always clues that a user is about to cancel their service and churn. Maybe they haven’t logged in a while or they simply aren’t using the full potential of the product.
On top of all these clues, we could add a low NPS score. These customers aren’t happy and they are going out of their way to tell you.
If you tie NPS scores to specific customers, you can then develop campaigns to nurture these clients. This might be as simple as a phone call trying to understand why they aren’t happy or it might be as complex as an email sequence. Either way, unhappy users who submit a low NPS score can become a goldmine of future happy customers.
Benefit 3: Finding High-Value Clients and Nurturing Them
This is the flipside to benefit 2. Using NPS, we could segment our customer list to find the happiest customers and develop a campaign to nurture them even further. This may mean working with them to upgrade (or expand) their account or asking them for referrals, testimonials, and case studies.
How Do You Start Using NPS?
There are 2 ways you can start using NPS:
Option 1: Your overall company or product
This is the easiest way to start and what I would recommend if you’re just getting started with NPS. Send your customers or users an email with the 1 question survey or use a tool (from the list below) to drop the question inside your product.
Find a way to automate this question so you can start tracking changes and trends in your NPS score.
Option 2: Specific features or sections e.g onboarding, signup, etc
If you’re more advanced, you can start using the NPS question at critical moments like after a user completes the onboarding or after they have talked to a customer rep.
You’re trying to capture how a user feels after an important interaction with your product and company. This can give you clues on what needs to change e.g. better customer support, better onboarding instructions, etc.
Since the NPS question is relatively simple, you could really send it using any number of survey tools like SurveyMonkey, Wufoo, etc. You could also use a dedicated NPS tools like Delighted, Promoter.io and Wootric. This second category of tools will make it easier to deploy the question inside your product and track the overall trend of your NPS.
The NPS score is a great metric for capturing a lot of data in one single metric. It is not the “ultimate” metric but it is a pretty darn good one. Start simple by sending the 1 question survey to your customers and go from there.
What is the biggest benefit that you could see for using the NPS score at your company? Let me know the comments!
I find most companies are stuck with high-level metrics and they aren't able to properly understand what actually drives user growth for their web and mobile products. To do that, you need the right data and the right tools.
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