In 2003, Harvard Business Review (HBR) published a story titled "The One Number You Need to Grow", written by Frederick F. Reichheld and outlining the correlation between loyalty and growth. He writes,
"Loyalty is the willingness of someone—a customer, an employee, a friend—to make an investment or personal sacrifice in order to strengthen a relationship. For a customer, that can mean sticking with a supplier who treats him well and gives him good value in the long term even if the supplier does not offer the best price in a particular transaction." He was writing specifically about the NPS or Net Promoter Score.
So let's talk about what NPS is. At it's heart, NPS is based on a 0-10 scale and a single question: Would you recommend us to a friend/colleague? 10 = Definitely and 0 = Absolutely Not.
In the example below, you'll see that from 47 respondents, you can identify 22 Promoters (people who gave scores of 9 or 10), 14 Detractors (people who gave scores of 6 or less) to produce an NPS of 17. But you know who you don't see in the equation? The Neutrals (the 11 people who gave a score of 7 or 8).
Turning those 11 Neutral respondents into promoters changes the loyalty score from 17 to 40. For a SaaS company, a good NPS score is 30. (see other industry scores here). So while the data from Gartner proves that you can't service your way to growth, you CAN service your way to retention and create Promoters who will help you grow through references, site visits, and publishable success stories.
Those who know me understand that I'm a fan of the NPS but there are some clear things NPS does not do. First, NPS isn't going to fix churn. #thankscaptainobvious NPS also won't tell you who is going to buy more from you. Like my 87 year old Dad and his 2012 Ford Escape - he is not going to buy a new car but he has been loyal to Ford since I was born and will tell everyone who is willing to listen how much he loves his Fords, including the service and reliability. The value of a Promoter is the ability to bring in new buyers. Lastly, a satisfied Client isn't necessarily a loyal client as discussed here and an NPS score really doesn't measure satisfaction, which tends to be highly transactional.
An NPS score trend is much more usable than a single score BUT making the score highly visible throughout the company is important. I recently interviewed with a CFO who was incredibly proud of his NPS score of 58. I asked what about the trend, specifically how the score differed from the last score, and he didn't know. An NPS score can help you identify where to focus. If your Service teams focus on the Neutrals and converting them to Promoters, your Sales/Marketing teams have an easier time generating new success stories and references. The leadership needs to understand the score, the ways it's being used, and where to plan for resource needs.
Another way to segment your NPS scores beyond Promoters Neutrals and Detractors, is Buyers and Users. The data behind this level of segmentation can help you create a Sales playbook that addresses the way buyers buy as well as a Service/Support playbook that addresses how Users .....well....Use.
NPS is a very useful tool and to implement it, it's important to understand what it is and perhaps more importantly, what it is not. If your company wants to grow and sustain ARR, NPS is an important tool but it's not a magic tool. Used appropriately, an NPS can help get your teams focused on the clients who deserve your attention the most and help you create Promoters who will help you sell more.