I was at SaaStock last week, so this article got pushed a week later. By the way, very solid conference, if you are into SaaS in Europe I suggest you attend it next year.
Net Promoter Score (NPS for short) is pretty popular among SaaS people. Some people obsess over its number, others hate it and most of us fall somewhere in between. NPS is not only limited to SaaS, but to other businesses as well, such as brick and mortar businesses.
I didn’t know much about NPS, so after reaching out to me and reading a couple great posts of his, I invited over Grigore Raileanu, CEO of Retently, WeeklyGrowth subcriber and successful SaaS entrepreneur to shed some light on the topic.
This interview is a no-BS approach to NPS, answering topics like:
1) Why NPS number is irrelevant
2) What are some NPS benchmarks, but why they are misleading
3) How to use NPS to reduce churn, get more advocates and increase MRR
I really enjoyed this interview, it taught me a lot and Grigore killed it with his answers. I am sure you will find great value in it.
Without further ado, let’s get started!
Alex Chaidaroglou: Grigore, thanks for agreeing to this interview on Net Promoter Score (NPS) for B2B SaaS and happy to have you here.
Judging from the quality of your blog posts I am sure that we will have a very interesting discussion and uncover quite a few golden nuggets about NPS.
First of all, could you please tell us a little bit about your role and what do you do on a day-to-day basis at Retently?
Grigore Raileanu: I am the founder at Retently, a SaaS Net Promoter Score service. I’m currently mostly involved in product management and growth. I’ve been working on our inbound marketing strategy and contributing with content in various ways.
I’m also crunching data and analyzing customer behaviour and product usage. This allows us to constantly improve Retently and keep it appealing and useful for our clients.
Alex: Would you like to give us a short overview of what NPS means for you, why it matters, some Net Promoter Score examples, and how do you deal with it on Retently?
Grigore: Net Promoter Score is the long awaited solution for one of the biggest problems that SaaS businesses face in their lifetime – customer churn, which goes hand in hand with customer satisfaction and loyalty.
NPS is a game changer due to not only its accessibility and simplicity in use, but also its high efficiency. The best proof for NPS’ importance is the simple fact that it is being used by all the successful brands, such as Apple, Amazon, Netflix and many more.
It turned out to be challenging to create a Net Promoter Score product. Although the framework was introduced 12 years ago, the metric started getting popularity only recently. We sorted it out and built a great product to offer that will save customers money, effort and eventually their business.
Alex: At which point would it make sense for a SaaS to start tracking its NPS? (if possible provide a specific minimum number of customers)
For example, if you are an early SaaS and have a handful of customers, you will know where they stand about your product through customer development and in the end, there are so many other things to focus on.
Grigore: Frankly speaking, there isn’t a specific number, as the statistical significance of the survey depends on several factors and differs from business to business.
For some B2B companies, getting 50 NPS survey responses might be statistically significant, while some B2C companies would need at least a few thousand responses just to consider the results statistically reasonable. So, it really depends.
Businesses are supposed to implement and track their NPS score not just to measure customer happiness. One of the main goals is to close the feedback loop and bring more value to their clients.
For example, NPS helps our customers gather feedback from respondents, so that they can solve problems as and when they occur.
So, in a way, it lets them take the proactive approach in product development, customer service and customer success, instead of bracing for the impact (customer churn).
Personally, I think the best time for any SaaS startup to start tracking their NPS would be when they validate their product idea and find product-market fit. When you have a few early-adopters, listening and gathering their valuable feedback is really straightforward. But, as you scale to hundreds or thousands of customers, keeping track of the overall customer satisfaction becomes challenging.
Using the NPS framework, SaaS startups can not only gain a pulse of their customer happiness, but they can also use it as a tool to optimize product experience and proactively close the feedback loop.
Alex: You are talking about closing the feedback loop both on your homepage and in your blog posts. If the customers just give a score how do you close it? Could you please expand on it? What does it mean and why it matters?
Grigore: Closing the feedback loop is the most crucial aspect of developing a customer centric culture.
After all, what’s the point of capturing feedback, if you are not taking proactive measures to interact with customers?
A simple way to close the feedback loop is to ask open-ended questions and explain how you plan to act on the valuable information your customers share. This will confirm that you understand their pain points and will continue to strive to make their business successful.
Also, you should let your customers know that the changes they’ve asked for have been implemented and the issues have been resolved. It is important to be honest and even if a reported bug is far away in your product roadmap, provide a clear estimate and explain this. There is nothing worse than customers thinking that their feedback is not being considered.
Similarly, you can re-engage passives and detractors by hearing out their problems and offering possible solutions.
Same with promoters. Many brands assume that promoters are more satisfied and loyal customers, so “no action” is needed. That’s not true. Promoters need to be engaged regularly and brands should close the feedback loop by thanking them for their positive feedback.
Also, 80% of brand promoters would willingly recommend your brand to their friends, if presented with an opportunity. So, you can also close the feedback loop by sending them a link to your brand advocacy program or just ask to share their satisfaction on social media.
At Retently, we made it easy to reach back to your customers and close the loop. You can contact any of your customers within the app, and ask for more details on the score or on the reported issue. All the communication between you and your customers is conveniently stored and it can be potentially converted into tasks, so you can track the progress.
Alex: Do you have a formula to calculate Net Promoter Scores? Is it foolproof? What should we pay attention to that might skew our judgment?
Grigore: The formula for calculating the score is quite simple. First, the respondents are asked a very simple question: “On a scale of 0-10, how likely are you to recommend our product/service to a friend or colleague?”
We call the individual responses to the question – LTR (likely-to-recommend) scores. Based on their LTR scores, respondents are further segmented into three categories: Promoters (9-10), Passives (7-8) and Detractors (0-6).
The Net Promoter Score is then calculated by subtracting the rate of detractors from the rate of promoters.
NPS = (% of Promoters) – (% of Detractors)
Now, what you have to understand about NPS or any other customer satisfaction metric for that matter is that they measure emotions, and not facts.
For example, if I ask you to measure how many customers churned last month, you could pull up an exact number from your dashboard in no time. But, what if I asked you how many customers you feel would churn this month? You probably won’t be able to come up with a number and say that you’re super confident about it, right?
Similarly, NPS is a lagging indicator of your brand’s referral propensity, measuring how many users are likely to refer your brand (sentiment analysis), instead of telling you how many people actually did (analytics). Instead of looking at the past numbers, it gives you an overall feel of the present customer sentiment, so that you can take proactive decisions.
Now, you would ask why do we want a survey that captures feelings?
Well, the truth is that sentiment analysis is as important as quarterly reports. According to a study published by McKinsey, 70% of buying decisions are based on what customers feel about the brand. So, if you are not measuring customer happiness, you’re overlooking the factor that drives almost 70% of your net sales.
Besides, NPS has been proven to be the most accurate and effective way to measure true customer sentiment (which is a predictor for customer behavior and future growth).
You should not worry too much about whether you have an NPS score of 10 or 30. To make the most out of NPS, you should rather be focusing on what the number is telling you and proactively engage your customers. I mentioned in another blog post that the score itself is irrelevant.
Alex: How do you deal with the ones who don’t respond?
Grigore: You might find this quite surprising, but businesses have better chances of re-engaging a detractor than a non-respondent. Typically, without re-engagement, 40-70% of non-respondents would churn within the next 6 months.
Basically, the only way to deal with non-responsive customers it to break the ice and proactively reach out to them. Do not survey non-respondents unless you find and solve their problem. While non-respondents don’t effectively affect your NPS score, they are your most at risk customers.
Alex: How do you deal with detractors, those customers that score 6 or lower and how do you prioritize which one to deal with first?
Grigore: As Bill Gates rightly said, “Your most unhappy customers are your greatest source of learning.”
We highly recommend our customers to start closing their feedback loop with detractors, because they not only have a high probability of churn (about 40-60%), but can also be re-engaged easily through proactive measures.
In fact, we tell our customers that your present detractors are your strongest promoters of the future, who want your offering to work for them, but for some reason or another, it’s not happening.
So, instead of looking at detractors as negative influencers, brands should see them as potential advocates, which can be re-engaged. Interacting with detractors is a golden opportunity for startups to learn, reduce churn, build promoters, and stop negative brand advocacy.
Regarding how do you prioritize them, we recommend tagging the NPS data with meaningful attributes, so that you can easily drill down on what’s important.
For instance, if a detractor is complaining about high pricing, you assign on the feedback tags like “Pricing” and “Upsells”. Similarly, if a detractor is complaining about poor customer support, you assign it tags, like, “Support” and “Responsiveness”.
If you keep doing this for all the negative feedback you have received, you’ll be able to plot a graph of the customer pain-points.
Once you have tagged the qualitative feedback, you need to then look at how many people are affected by the issue and who are these customers?
For instance, if a lot of customers are asking for the same feature, it makes sense to prioritize it. Similarly, if a lot of clients are complaining about your pricing, it makes sense to add a mid-tier plan or to simply give them an extended free trial.
Tagging qualitative feedback and automating your NPS framework can go a long way in smoothing out the evaluative process.
Alex: Based on this image you want scores of at least 7. Is this universal, or different companies have a different scale?
Grigore: While the NPS framework is universal, accurate interpretation of the score can be made after considering the response bias.
For instance, European customers are generally more passive than Americans, even though both of them do really like a product. So, in the situation you’ve got a score of 50 for US and 25 for Europe, that still does not imply that you’re doing bad in Europe. It just means that different cultures express differently their referral propensity.
In a similar way, the response bias can exist based on the type of business as well. For instance, if you’re running a B2B business, different departments can engage with you at the same time, and have entirely different opinions about your product/service.
A junior executive in the customer service department might give your product a 5 on the survey, but a senior management executive can give you a 9 or 10. Whose opinion matters more to you? The one who uses your product or the one makes purchase decisions? Without appropriate segmentation or accurate targeting, it’s hard to tell.
Alex: It’s interesting that you are tracking a range of NPS and then get its average based on your net promoter score formula. Since it’s such a volatile metric, what should Customer Success Managers pay attention to and why should they care?
Grigore: For maximizing business impact, it’s important to consider the quality of the sample, not just the numbers. This covers what customer segment are you surveying, how long have they been your clients, how engaged are they with your product and service, etc.
Closing the feedback loop and addressing the issues reported by customers has a greater business impact than getting a statistically significant NPS result. Once you start receiving feedback, classify it by priority and start addressing the reported issues right away.
Make sure you throttle your surveys and don’t send them all at once, as you might get overwhelmed by the amount of feedback, and you might not be able to process it in a timely manner.
I also recommended to start your Net Promoter Score campaigns as soon you get to the product-market fit, even if you have just a few customers. This way customer satisfaction will be established as a core value of your company and an important part of your customer success culture.
Alex: Do you think that companies with a high number of customers should have a different NPS score for different segments of their customers?
Grigore: Certainly. In fact, that’s a great question and I’m glad you asked it.
Segmentation is a crucial aspect of making the most out of your NPS campaign, as customers are different. We recommend segmenting the score by subscription plans, account level, user persona or milestone, etc.
For instance, by segmenting an NPS score with regard to plans and finding that your paid customers are, in general, happier than free, you can conclude that your product is delivering amazing value.
By segmenting your NPS scores by milestone (measuring customer satisfaction every six months), you get to see if your customer satisfaction levels are increasing as customers keep using your product.
Regarding your question on whether companies with a higher number of customers should have a different NPS, I think it really doesn’t depend on a specific number, since companies at all different scales are now using the score to track customer satisfaction.
NPS tracks the rate of your happy customers, so the metric should ideally stay consistent as you grow. Of course, when you’re in the development phase, you might get a higher score, since you interact with your customers on a regular basis and have a lot of personal one-to-one interactions to keep them happy.
As you grow, you might see a smooth decline in that graph, as now it’s no longer possible to stay in touch with tens of thousands of customers.
So, if you plot the NPS score of your brand with time, you should see a trajectory with the initial NPS score being high (seed stage) and the number gradually settling at a specific number (growth stage).
Alex: I think most businesses don’t close the feedback loop, is that correct? Could it be an “unfair advantage” to those who do?
Grigore: Yes, most businesses don’t close their feedback loop, mostly because they don’t have a framework to automate and act on the actionable insights. But, let me tell you, it could be a huge unfair advantage for those who do.
Closing the feedback loop will differentiate a business from other competitors, because they will be taking proactive measures to retain customers, while their competitors would be mostly oblivious to their true customer sentiment.
Alex: Net Promoter Score has been criticized in the past. What would you say NPS is tied to? (i.e. Churn reduction, Upsells, etc)
Grigore: From being a lagging indicator of customer advocacy to having high statistical variance, NPS has been criticized for fabricating an inaccurate picture of customer satisfaction, so being a metric that’s “too good to be true”.
What really matters is that most of these limitations can be overcome through proactive implementation of NPS methodology and predetermination of actionable metrics.
For instance, using Retently’s automation framework, startups can create segments and schedule surveys to be sent automatically at a predefined time (based on user-specific timezones) to improve response rates.
We support integrations with popular email marketing, CRM, billing and helpdesk products and services, so that our customers can tie up their NPS scores with their sales data and get actionable insights. To ensure our customers make the most out of the captured scores, we also provide them insights and tools to close the feedback loop, providing a medium to feedback into interactive conversations.
So, instead of negating these widespread criticisms about NPS, we have actually used that negative feedback to optimize our product experience and strengthen the proof of concept.
Regarding your question about what NPS is actually tied to, brands that have high NPS usually have high customer retention, low churn and reduced customer acquisition costs. Since businesses with high NPS have a larger percentage of promoters, it also makes upselling and cross-selling easier.
Apart from the growth metrics, NPS can also be linked with financial metrics, since NPS is closely linked to MRR – a key financial metric for SaaS businesses.
And it’s not just for SaaS. NPS is linked with a lot of key performance indicators for non-SaaS companies as well. For instance, AirBnB uses NPS data to accurately predict the number of rebookings.
So, the kind of insights that you get from NPS really depends on how you slice and dice the NPS data to reveal the true picture.
Alex: Could you give us some benchmarks for Net Promoter Scores?
Grigore: The range of Net Promoter Score varies depending on the business segment and the nature of the business. For instance, Tesla Motors has a NPS score of 96, which is exceptional and I have never heard of such a high NPS score before. But that’s because they’re positioned in a unique segment and they are delivering customer delight through continuous innovation.
If you look at other verticals, for instance, Internet Providers, you’ll realize that the industry has relatively low NPS scores. For instance, Verizon has a NPS score of 38, while MediaCom has a score of -22. It’s not because these companies deliver poor services; it’s simply because they’re dealing in an industry that has zero tolerance towards downtime.
You’ll probably be okay if there’s a problem with your Tesla, and the company fixes it in a day, but you’ll go mad if it takes a day for your ISP to get your Internet back. So, again, while benchmarks do exist, you should consider them in the right context.
Alex: Should startups focus on benchmarks or should they ingore them, because they vary widely from industry to industry?
Grigore: NPS benchmarks vary from industry to industry. Just because Amazon has a score of 69 does not imply that you should also beat yourself up to get it.
If you really want to do a comparative analysis, breakup the data for your industry, target audience and geography. Then compare your NPS score within your industry. You should really not be comparing it with companies in other verticals.
Alex: How do you help startups track their NPS and why are you different from the competition?
Grigore: We’ve got a free plan that will fit any bootstrapped or growing startup’s needs. Once they evolve, get more customers and start seeking complex automated workflows, they can upgrade and benefit from one of our premium plans.
Comparing with competitors, our survey template is highly customizable in terms of content (even different languages for different customer segments), while keeping the same one-question survey and the follow-up response. The templates can be attached to different customer segments.
Automation rules and different integrations could help build a low-touch, automated workflow that feels for customers as a high-touch one, letting them know that you are listening and appreciate their feedback.
Last but not least, we see our product evolving into a complete Customer Success platform, where our customers will be able to get a complete overview of their business and customers’ lifecycle.
Alex: Do you have only SaaS businesses or businesses from other industries see the value of NPS as well?
Grigore: While we like to highlight major tech brands like Apple, Amazon and Netflix because of their familiarity, a lot of businesses from diverse industries, like financial services, insurance, technology, travel and communications, are now using NPS surveys to keep track of their customer loyalty.
I believe that every successful company should be obsessed with aligning their teams around customer experience and analyze NPS data through relevant business drivers, closing the loop with their customers and winning them for life.
I’d like to thank again Grigore for being on WeeklyGrowth and for taking the time to share these very handy insights on NPS. I sure enjoyed the interview and learned a ton of new stuff.
I really liked this NPS approach because it ties with qualitative data and customer success rather than an arbitrary number using it aimlessly in meetings.
If you have any more questions, please drop them in the comments and Grigore will do his best to answer them.
Thanks for reading!