SaaS companies from all industries thrive on customer loyalty and retention. That's why they spend so much time seeking valuable feedback on what their customers really think about their product: the pros, the cons, the loves, the hates, the areas that need improvement, etc.
Net Promoter Score (NPS) is one feedback method that can do just that. Since Bain & Company first developed the NPS score in 2003, SaaS companies have used it to gather qualitative data to measure and improve customer experience and loyalty. NPS is notably the most implemented customer experience KPI over all other user feedback types.
What is NPS?
Net Promoter Score (NPS) is a standardized method among SaaS companies for measuring customer satisfaction. It gives valuable information regarding customer insights and is popular because it's easy to calculate, simple to understand, and paints an accurate picture of how a company is performing with its customer base. The classic NPS question wording is simple and goes something like this: "On a scale of 0 to 10, how likely are you to recommend our business to a friend or colleague?"
Unlike other metrics such as customer engagement, NPS measures customer happiness and potential growth based on word-of-mouth and how likely customers are to promote and recommend the product to other potential customers. For SaaS companies, a decent NPS score means that the product provides value and solves customer pain points.
Why is NPS useful for SaaS companies?
NPS is beneficial for SaaS companies because getting direct, contextual feedback and understanding customer attitude toward the product will save countless hours of research and help steer the product team in the right direction.
NPS is especially helpful when you can use your company's breadth of customer data, including their locations, preferences, purchasing habits, demographics, and more, to group your customers into segments. Then, the score helps segment customers into Promoters, Passives, and Detractors. It also gives companies forecasts, signals, and predictability about customer retention, churn, and revenue.
NPS is typically measured continuously. A product will change and grow, so monitoring the pulse of customers provides the data needed to iterate quickly. Ongoing NPS measurement also offers a continuous stream of qualitative data, which is essential to shedding light on significant issues, like if the product needs a better value proposition or product/market fit.
How to calculate NPS
A Net Promoter Score (NPS) is a numerical value between -100 and +100.
This score helps determine who is interested in the product and who isn't. It is calculated using a simple formula based on the responses to a 0-10 score form. Users who respond to your 0-10 score form can fall into three categories: Promoters, Passives, and Detractors.
Promoters are users who respond with a score of 9 or 10. They are brand advocates and would likely recommend the product and are getting continuous value from using it.
Passives are users who respond with a score of 7 or 8. They like the product but don't love it, and they probably wouldn't go out of their way to recommend it. They are in a position to either convert to Promoters or downgrade to Detractors.
Detractors are users who respond with any score between 0-6. They are individuals who aren't satisfied with the product, wouldn't recommend it, and might even discourage others from using it. They have a high chance of churning because they encounter friction in the product or don't see its value.
Based on the categorization, the team can later:
Research what types of user personas typically respond with 9-10 or 0-6.
Diagnose common issues with specific user personas.
Learn users' expectations and goals.
Once users have been categorized, the formula for calculating NPS is simple.
Total % of promoters – Total % of detractors = NPS Score
Based on the segments created, you can determine what strategies for which user groups could be implemented. For example, you could learn essential feedback from Detractors, educate Passives so they get excited about the product's benefits, and convert Promoters to brand ambassadors.
NPS benchmarks for SaaS
NPS metrics can widely range from -100 to 100. While extremes are unlikely, keeping your score above zero is a must. The score will be negative when the product has more detractors than promoters and positive when the reverse occurs.
Generally, a positive NPS is considered "good," and any number above 30 is considered "excellent." According to NICE Satmetrix NPS 2021 benchmarks, a good NPS score for a SaaS product is approximately 41. The rise in attention to customer experience has undoubtedly pushed the benchmark higher, as just three years ago, the average in the SaaS industry was 30.
A "bad" score essentially means a negative NPS score, indicating users do not recognize the product's value. A bad score could mean that your team is targeting the wrong audience or user segments, or the product needs improvement.
Product leaders should focus less on having a better score than competitors and more on what their customers are actually saying. A long-term NPS implementation is key to providing value, understanding the needs and problems of customers, and pinpointing strategies to offer them help and guidance.
How to use NPS correctly
When not to use NPS
Avoid using NPS when looking for an exact number of how many users like your product and how many users don't. NPS responses can vary between customer segments. If your company hasn’t done the work of customer segmentation, it's highly probable to end up with a long list of results that offer little insight into what's behind the responses. The NPS score alone would be a broad generalization without defined user segments.
When to use NPS
It’s smart to implement NPS surveys while users engage with the product. This approach makes customers more likely to respond and give honest feedback. Consider triggering the survey for specific segments at a time, like when they log into their account.
Tools you can use to track and analyze NPS
Now that you know the definition of NPS, how it's calculated, why it's crucial for SaaS, and how to use it correctly, you can start seeing its benefit for your own company. While rallying your development team to work on its implementation is always an option, they likely have more critical product updates to tend to, and the process may not be seamless.
So, suppose you don't want to put the extra burden on your developer's shoulders and want to save valuable resources on calculating and using your NPS. In that case, you can always use external sources that offer practical tools for calculating, evaluating, and benchmarking NPS. Here are some of the best NPS tools available:
Collect user feedback and sentiment with Lou
NPS is a helpful metric to measure customer happiness and success. If you're looking to level up your customer insights and take advantage of this important score, use a tool like Lou's newly launched NPS feature. With Lou, you can launch an NPS survey in minutes with zero code to collect user feedback and sentiment. Plus, your first survey is free. Learn more.
Published on April 25th, 2022
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