NPS = %Promoters - %Detractors
Net Promoter Score (NPS) Definition
Net Promoter Score or NPS is a measure of a customer base’s willingness to promote a product or service to colleagues and friends. It is based on the results of a current customer survey, which asks respondents to answer the following question: on a scale of 1-10, “how likely is it that you would recommend (brand or product X) to a friend or colleague?” Responses are grouped as follows: 10s and 9s are brand ‘Promoters’, 8s and 7s are ‘Neutrals’, and any responses below 7 are brand ‘Detractors’. Net Promoter Score is calculated by subtracting the proportion of Promoter scores from the proportion of Detractor scores.
Net Promoter Score (NPS) Example
Suppose you issued an NPS survey to your customer base, and collected the following responses:
Detractors: 6 (4.8%)
Neutrals: 64 (51.2%)
Promoters: 55 (44%)Total: 125 (100%)
Net Promoter Score = 44% - 4.8%
Net Promoter Score (NPS) Benchmarks
When it comes to NPS, clearly the higher the number the better, but there are no definitive benchmarks for SaaS companies. Here’s some expert advice and rules of thumb:Net Promoter Network
- According to surveys completed in 2015, the average NPS for software companies of all sizes is 23.
- Surveys completed by software company's range from 91 to 1, with a lot of companies reporting net promoter scores between 20 and 40.
- The average NPS of all Survey Monkey clients who use NPS is 31, according to their NPS Benchmark Report.
Developing, executing and extracting value from NPS surveys is not without its challenges. These can include:
- Distributing the survey to a large customer base without annoying them;
- Getting a high enough response rate to make the results matter;
- Getting an NPS reading in real-time so you can act to improve your business in real-time.
These challenges are heightened by the fact that most NPS reporting is periodic and ad hoc, with little foresight to what will be done with the results. The “result” is therefore a vanity metric that is of little use. For more on the NPS vanity trap see Beyond Vanity Metrics: NPS and Customer Referral Rate.
NPS Best Practices
Absent a plan to monitor and act on information obtained through a net promoter program, NPS is useless and you’ve disrupted your customer base for no good reason. To be useful, net promoter scoring should start by answering two related questions: (1) why are we asking? and (2) what will we do with this information? Most organizations will use an initial NPS survey as a benchmark, and track subsequent NPS surveys to measure ebbs and flows in customer sentiment over time. Having clear visibility into changes in NPS over time enables action when customer satisfaction/loyalty drops significantly. A climbing NPS score is an indication that customer experiences are improving, so you should keep doing what you’re doing.
Perhaps the best insights and the most powerful benefits of net promoter scoring come when you combine NPS with related KPIs such as Customer Retention Rate and Customer Referral Rate. If NPS has been falling for the past two quarters, you should expect to see a climb in customer churn and a reduction in account expansions and referrals. On the other hand, as NPS climbs, you would expect to see rising customer referral, retention and expansion rates. Measuring the relationships between these metrics can help optimize performance over time.
How to monitor NPS in Real-time
Once you have established metrics for measuring Net Promoter Score (NPS), you’ll want to establish processes to monitor this and other SaaS KPIs on a continual basis. Dashboards can be critical in this regard.
Learn more about how to track your NPS on a SaaS Dashboard.
Customer Acquisition Cost: Top Resources
Interactive 2016 Consumer NPS Benchmark, Net Promoter Network
Net Promoter Score℠ Benchmarks for Customer Loyalty, Survey Monkey