Every team employs a unique combination of metrics to gauge performance, but no metric is more ubiquitously adopted than Net Promoter Score (NPS). While NPS is a company-wide metric determined to gauge general user satisfaction, more and more companies are looking at the metric as an ultimate judgment of product success. For product owners, then, you may be increasingly expected to plan, manage, and improve your company’s NPS results. In the most extreme of cases, performance and compensation may even be influenced by the metric.
So, what is NPS, how is it used, and why do companies seem to favor this metric over others? More interesting, should NPS really be considered a product metric? Let’s explore some of these ideas from the perspective of a product owner.
What is NPS?
An NPS survey asks a simple question: “How likely are you to recommend [company X] to a friend or colleague?”. The survey respondent must answer this question based on a scale of 0-10, with 0 being the least likely and 10 as the most likely. Generally, companies follow this question with an open-ended question asking the user to elaborate on their response.
The Net Promoter Score was created by a team at Bain & Company as a part of a management philosophy they developed, the Net Promoter System. This philosophy emphasized earning the passionate loyalty of the customer, even at the expense of short term profit, in order to achieve sustainable, organic growth. In essence, the NPS survey attempts to gauge brand loyalty across various user groups and lifecycle stages of a product.
“Loyal, passionate customers stay longer, spend more, contribute suggestions and sing your company’s praises to friends and colleagues.”
– Fred Reicheld, creator of NPS
Reicheld went on to elaborate upon his findings in the Harvard Business Review, describing customer loyalty as one of the biggest drivers for growth across industries.
How Is It Calculated?
NPS is unlike many customer satisfaction metrics in that it requires a bit of work to determine the ultimate score (as opposed to something like CSAT which is a simple 1-5 scale). To help us understand how to calculate NPS, let’s start by breaking down the term itself:
- Net: refers to the difference between a set of values
- Promoter: refers to someone who discusses your business with others
- Score: a value used to determine success
Calculating an NPS score involves collecting a statistically significant number of NPS survey responses (more data will provide greater accuracy, but Zendesk recommends 250 minimum), then grouping respondents into one of three categories:
- Promoters: responded with a score of 9 or 10. These users are your product’s evangelists and are likely to refer others to use your product.
- Passives: responded with a score of 7 or 8. These users like your product, but are unlikely to recommend it to others.
- Detractors: responded with a score of 0 to 6. These users are unlikely to recommend your product to others and may even speak negatively about it.
The Net Promoter Score is the percentage of Promoters minus the percentage of Detractors. Passives are not accounted for in the NPS score calculation. (As an aside, this is unique to NPS. Other satisfaction metrics, such as Customer Happiness Index, do take Neutral responses into consideration and in fact use it as a key aspect of the metric.)
Let’s look at an example: assume that survey results show that 40% of respondents are Promoters, 30% are Passives and 30% are Detractors. In this example, the Net Promoter Score for the company would be 10 (40 Promoters – 30 Detractors = 10).
Net Promoter Scores vary dramatically by industry and thus are best understood as a relative metric. Since there isn’t a universal standard for NPS, many companies compare their NPS scores to other companies within their industry as a benchmark. To illustrate just how variable these scores can be, the average reported NPS score amongst SaaS companies is 26, while the average e-commerce company hovers around 63. Your ultimate goal should be to consistently increase your aggregate NPS over time.
Why Do Companies Use NPS?
Now that we’ve covered the basics, let’s dig into why so many companies have come to rely on NPS.
It is simple
A one-question survey introduces less friction than other survey options, leading to a less disruptive customer experience and greater user engagement. The score is simple to calculate and interpret, making it popular for use by executive teams reporting on customer satisfaction.
Disclaimer: The simplicity of NPS is also one of its most glaring issues, especially when a company is using NPS as the primary method of feedback collection. NPS is not a silver bullet; it should be one of many inputs designed to help a company truly understand the value it is creating for customers and how satisfied customers are with their experience. The simplicity of NPS can often result in a shallowness of learnings, and the potential for results bias. Depending on the context of the survey (i.e. how, when, and where it is delivered to users) the results of a survey sent to the same user population may vary.
It predicts customer loyalty
The NPS question calculates “recommend intention”, which is the likelihood that a customer will refer a company to a colleague or friend. In a study, the creators of the NPS survey found that the NPS survey, when compared to others, has the strongest statistical correlation with repeat purchases and referrals.
Disclaimer: Proponents of NPS have designated it as the preferred method for measuring customer loyalty due to the perceived understanding that likelihood to recommend correlates with customer loyalty. More recent studies on the impact of “recommend intention” on predicting future customer loyalty and behavior have disproved the correlation. These studies reveal no statistically significant correlation between any single metric attempting to gauge customer behavior across a diverse user population, starkly contrasting with the ideas posited in the article that popularized Net Promoter Score, “The One Number You Need To Grow”.
Customer loyalty is correlated with future business growth
Surveying for NPS alone doesn’t necessarily drive business growth. Instead, companies who adopt NPS as a key metric are more focused on improving customer loyalty, which directly correlates with business growth. Generally, as a company’s NPS score increases, rates of churn and customer acquisition costs decrease.
Disclaimer: Recent studies have disputed claims of the strong correlation between NPS scores and future business growth. Even the creator of NPS has admitted flaws in his original research, stating that any correlation between NPS and future business growth is not likely causal. Rather than attempting to predict future behavior based on customer intention, a better indication might come from looking at past behavior. By surveying users on whether they have actually recently recommended a company to a friend or colleague, the actual NPS (aNPS) question does precisely that. These results will present a more accurate representation of the truth and predict future behavior more accurately.
How Companies Use NPS
Most companies deliver NPS surveys in two ways: 1) following specific event-based triggers, or 2) in intervals following time-based triggers. The two can be used in conjunction, but be sure to avoid spamming users with surveys too often (waiting at least 90 days before surveying a user again is recommended).
Event-based triggers occur after a specific in-product experience, like after onboarding, closing a customer support ticket, or following an in-app purchase. Ideally, for greater response rates and more valuable feedback, an NPS survey triggers after an important step in a customer’s journey. By doing so, the NPS data can be tied to a specific point in the customer experience that is trackable and can illuminate actionable next steps. For example, surveying NPS after closing a customer support ticket can both evaluate the quality of customer support provided and indicate areas of the product experience that either weaken or strengthen customer loyalty. A survey respondent categorized as a Detractor may illuminate a part of the customer experience that requires attention, while a Promoter may illuminate parts of the product that ought to be replicated in the future.
Time-based surveys are triggered at intervals throughout a user’s journey with a company. For example, one company may send each user a survey once after their first 90 days, then in 6-month intervals afterwards. This is useful for determining long-term customer loyalty and identifying exactly when a change in customer satisfaction occurs during the product experience. Customer retention is important for growth, so it is important that companies optimize by addressing changes in NPS levels for long-term customers. They contribute valuable feedback because they understand the product better, and they cost less to keep than acquiring a new customer. Retaining long-term customer loyalty directly correlates with increased referrals, which lowers customer acquisition costs in the future.
But these methods aren’t a silver bullet…
Since customers can encounter NPS surveys at any number of points throughout their product journey, it’s probable that they want to provide feedback more nuanced than a 1-10 rating. This is even more problematic when NPS surveys are the only occasions when teams attempt to engage a user for feedback. The feedback can be impulsive, and scores are easily motivated by recent events like a discount they received or page that loaded slowly just before the survey. Its simplicity makes it less valuable as a long-term gauge of customer loyalty and predictor of future behavior, and instead, more useful for understanding how a customer feels at a particular moment in time.
Similarly, many companies segment users based on concepts like lifecycle stage, activity levels or conversion date in order to compare responses across each stage or user persona. This method helps identify specific pain points in particular areas of the product or for specific segments of users. Users of a freemium product will share different opinions than your highest paying customers, so account for this when analyzing the data you collect. You can read about the five types of user cohorts we recommend using for user feedback collection here.
What to Do Next
When used effectively, NPS can provide actionable insight into what your users need and how important those needs are to them. Improving customer loyalty will require that your team internalize the data, follow up with respondents, analyze the data collected and use it to influence your overall product experience. You should also note that predicting customer loyalty cannot be achieved through NPS alone. Customer loyalty is multidimensional, so a combination of various surveys and metrics is required to understand user satisfaction and accurately predict future customer behavior.
Follow up with survey respondents
Each NPS score you receive is valuable and deserving of some form of follow-up, particularly if they provided qualitative feedback with their response. Here is how you can follow up with each category:
Promoters: Promoters are often your most active users; they are knowledgeable about your product and vision, and their feedback is especially valuable. These users are most likely to leave positive reviews or refer your product to others, so you should encourage this behavior. Offering a reward or discount as incentive may support these efforts. Also, since these users are already satisfied with your product, they may be more receptive to upsell opportunities like a discount for premium features.
Passives: While they aren’t as likely to speak negatively about your company as Detractors, “Passive” customers may be considered likely to churn if they find a more suitable alternative. Investigate where these users are in their customer journey – a commonality here might indicate a stage of your product that needs general improvement, but sometimes the issue is simply inadequate education. You should take the opportunity to provide them with additional learning resources to ensure they are properly educated on your product’s best practices.
Detractors: Let them know that you are looking to improve in the areas they disliked. Triage messages to the responsible team within your organization for follow up so they can discuss their issues further with your team. At the very least, this will show that you are listening, decreasing their chance of churning or sharing negative feedback with others. Best case scenario, the user reveals valuable feedback that leads to product improvement.
Collect and analyze the data
Each company’s approach will vary based on how and when they surveyed users. To start, you should separate responses into the three NPS categories and bucket issues based on the events, times, or qualitative data provided in order to determine relevance and priority. There are dozens of NPS analytics tools available that offer sentiment and feedback text analysis. If you are serious about NPS, you should invest in these tools to make the most of your efforts.
Use analysis to guide product improvement
NPS scores are only as valuable as the steps taken to improve them. Don’t let this data collect dust in a Slack channel or analytics dashboard – take advantage of it when prioritizing your backlog. Establish internal processes that ensure that feedback reaches the appropriate internal stakeholders. Regularly dedicate time towards discussing NPS score changes and qualitative feedback as a team to ensure your entire organization is attuned to customer feedback.
Use NPS alongside other feedback & research collection methods
Any company that tracks NPS does so to improve customer loyalty and collect user feedback, all with the hopes of increasing business growth. Contrary to the conventional wisdom, using NPS as a standalone metric isn’t going to achieve these goals. NPS scores are influenced by a myriad of factors such as the context it appears in, or the type of user responding. NPS may paint a general picture of customer health, but it will never accurately illustrate future purchasing behaviors if not used in conjunction with other methods of user research, like CSAT, CHI or other product-specific metrics.
Conclusion
Net Promoter Score has solidified itself as a cornerstone of many company’s user feedback collection processes for good reason. It is a simple way to understand and track aggregate user satisfaction. While NPS can act as a useful health check for your business, you should be wary of holding product teams to NPS as a product metric. NPS and product engagement are not synonymous and should not be treated as such. In order to provide value, NPS must be executed within a very specific framework to ensure a lack of bias. In an upcoming post, we will highlight more critiques of NPS and describe alternatives for improved methods of collecting and analyzing user satisfaction. Subscribe to our blog and we’ll send you a copy when it’s available.
