If you are a SaaS business, you must read this article to understand:
- What is the Net Promoter Score (NPS)?
- Why is Net Promoter Score (NPS) Important for a SaaS Business?
- How to Calculate Net Promoter Score (NPS)?
One of the key aspects of your SaaS business is to monetize and retain its customers. There is no limit to the number of customers that you can add or cater to.
However, more customers in no way translate to a successful SaaS business if you at the same time experience high customer churn rates.
On the flip side, if your customers are happy using your SaaS offerings, they are highly likely to recommend them to their family and friends.
Online reviews and product recommendations from family and friends are critical sources your customers depend on for making buying decisions.
As per Local Consumer Review 2022, 98% of consumers read online reviews before making a buying decision.
Similarly, 49% trust customer reviews as much as personal recommendations from family and friends.
As these statistics reveal, it is so important that your existing customers are happy with your SaaS offerings. This not only makes them leave good reviews but also recommend your SaaS offerings to others.
In other words, a single bad review can cost your SaaS business so much. Further, a customer is more likely to remember that one bad experience over the numerous other good experiences with your SaaS offerings. This is where the SaaS Net Promoter Score comes into the picture.
It is one of the key standards SaaS companies use to track and analyze the degree of customer loyalty. Let’s first have a look at what is NPS.
What is the Net Promoter Score (NPS)?
Net Promoter Score or NPS is a benchmark that measures the degree to which your customers are satisfied and happy with your products and services. In other words, it is a measure of the customer satisfaction performance that reveals the probability that your existing customers will suggest your products or services to others.
Typically, the Net Promoter Score (NPS) is a benchmark that businesses use to track, analyze, and improvise customer loyalty. It gives you valuable insights into whether your business is reaching its targets and the processes that it needs to improve. It measures the overall experience customers have with your business in place of a singular transaction or communication.
You reach the NPS for your business through the feedback that you collect via customer surveys. The whole intent of calculating and analyzing the NPS for your business is to create an outstanding experience for your customers. Through the data that you collect via customer feedback, you can get to know so much about what the customers feel and expect out of your business.
Accordingly, you undertake these NPS surveys so that you can understand the customers better and make the necessary improvements to earn their loyalty. Thus, the sole focus of these NPS surveys is to get insights to improve customer loyalty so that your customers recommend your business offerings to their friends and family.
How is Net Promoter Score Calculated?
NPS is calculated by following the below-mentioned steps:
- You first send a survey to your customers. In this NPS survey, you ask only a single question to your existing customers. And that is, what is the likelihood that they will recommend your products, SaaS offerings in this case, to their family or friends on a rating scale of 0-10?
- Next, you divide your customers based on the rating feedback you get from them for this NPS survey. The customers are divided into the following categories based on their rating. Customers giving a rating between:
- 0-6 are detractors
- 7-8 are passives
- 9-10 are promoters
- Finally, you calculate the NPS by subtracting the % of detractors from the % of promoters. You simply ignore the passives for calculating NPS. Thus, the NPS calculation is done using the following formula:
SaaS NPS Formula = % of Promters – % of Detractors
Let’s plug this formula into an example to better understand the NPS calculation. Say, you survey your existing 1000 customers. Now, the survey results give you the following figures:
- No. of detractor responses = 100
- No. of passive responses = 300
- No. of promoters = 600
Thus, % of detractors = 100/1000 = 10%
% of passives = 300/1000 = 30%
% of promoters = 600/1000 = 60%
Accordingly, your SaaS NPS = 60% – 10% = 50%
Let’s now have a look at each of the NPS survey responses in detail.
These are customers who give a rating between 0-6 for the question ‘How likely are they to recommend your business offerings to friends and family?’ These are customers who are not satisfied with your business and are least likely to recommend you to others.
As they are not happy associating with your business, there is a higher chance of losing them to competition. Not only this, they are very likely to give a negative review or share a negative experience with your business with others. They are the ones who can taint your image.
They are the ones who give a rating between 7-8 in your NPS survey. The reason why they are excluded while calculating NPS is that they are cold or impassive. This means they can either turn into promoters or detractors with time.
These are the loyalists who are your happy and satisfied customers. They rate you between 9-10 and are highly likely to recommend your business offerings to family and friends. These people share their positive experiences with others and are the ones who can earn you new customers. That is why the higher the number of promoters the better. No wonder, why SaaS companies like yours lay too much focus on retaining customers and increasing customer satisfaction.
Why is Net Promoter Score Important?
1. Know Your Customer Loyalty
Since NPS measures the likelihood your existing customers will recommend your business offerings to others, it is an important metric for measuring customer loyalty. As per studies, 55% of the companies measure customer happiness and satisfaction through NPS surveys.
NPS is used as one of the key metrics to evaluate customer happiness and loyalty. Through NPS surveys, you get insights into why your existing customers are happy and satisfied with your say SaaS business offerings.
Also, you would want to add new customers to the existing pool. However, retaining and turning the current customers into evangelists generates higher returns. Therefore, you would want to keep your customer churn rates in check and monitor NPS to have more happy and satisfied customers.
Finally, tracking NPS can also help you identify certain trends. For instance, when you undertake an NPS survey, you divide the customer responses into detractors, passives, and promoters. Now, if you conduct NPS surveys from time to time and calculate NPS over the period, you would know the change in the number of each of the customer categories. Say, you may see detractors reducing and passives increasing with time. This indicates that more customers are becoming satisfied with your business offerings.
However, you could also see a fall in promoters and an increase in passives. This may alarm you about the possibility of customer churn. This is because customers are turning from promoters to passives indicating that they are not happy with your business offerings. This could also mean more negative reviews and fewer chances of product recommendations to others.
Pagely is an enterprise-grade WordPress hosting solution that uses NPS to keep a check on areas that need improvement to reduce customer churn.
They use NPS to resolve the challenges of the customers who rate them negatively or neutral. This way they ensure that they are working on the concerns of their customers and at the same time preventing customers from leaving them.
Obviously, measuring NPS does not mean winning over all the customers as that is not possible. However, it certainly provides Pagely an understanding of what customers are happy with and what needs to be improved for higher customer satisfaction.
Pagely has seen the churn rates going down since the time it has implemented the NPS program.
2. Find Problem Areas That Can Be Improved
NPS survey is a great way to know issues customers are facing with your SaaS offerings. There may be times when some of your customers rate you poorly but that’s still useful. This is because it gives you an opportunity to know the aspect of your SaaS offerings that they are not happy with.
In fact, when sending out the NPS survey, ensure that you provide some space for additional comments. This is where you can ask your customers the reasons behind such a rating. Now, this information may indicate or hint towards the existing issues with your SaaS offerings. Needless to say, it is an opportunity to improve on the problem areas so as to improve the overall customer experience.
For instance, customers may complain about a lack of functionality, poor customer support experience, a user interface that is not customer friendly or easy to use, etc.
Feedback like these can be shared with the product development or customer support teams. When you know what makes your customers happy and what doesn’t, you can use this information while onboarding new customers.
Similarly, the product team gets insights on existing product functionality that is keeping customers happy or expected functionality that can be added in the future. Further, the customer onboarding teams know how they need to guide the new customers and get them on board in a way that not only earns their loyalty but makes them recommend your business offerings to others.
3. Increase Your Referral Business
When you know what percentage of your customers are promoters, you have an understanding of the potential business you can generate via referrals. These promoters are highly likely to leave a good review and recommend your business offerings to others.
We cannot ignore the importance of online reviews in the buying decisions of potential customers. If you have more promoters, there are good chances of these customers leaving good reviews and recommending you to others. Needless to say, people are more likely to buy a certain product or service if it is recommended by a friend or family member.
Additionally, referred customers have a higher probability of sticking around with your business. This translates to higher customer lifetime value and returns for your SaaS business.
Not only this, when your customers trust you and are happy with your offerings, they are happy to give product/service reviews. These can be used to lure new customers. In fact, many companies come up with referral programs where they reward the existing customers for referring you to others and helping you get new clients.
4. Approach Customers Who Give Negative Rating
Since you divide the customer responses into detractors, passives, and promoters, you know the customers who give you a poor rating.
This helps you to approach them so that you can understand the grounds on which they rated you between 0 and 6. Thus, knowing why they are unhappy with your offerings can give you insights into processes and product functionality that need your immediate attention.
In fact, listening to these customers who give you low ratings can help you address their issues. They too feel that their issues are being heard and resolved, which prevents them from leaving negative reviews or sharing their negative experiences with your business with friends.
Net Promoter Score Benchmarks for SaaS
You have to check with the SaaS industry-standard to know what makes a good SaaS NPS. Each industry has its own benchmarks for NPS and can range between -100 and 100.
Obviously, you would want your NPS to be above zero. This is because a negative NPS would indicate that there are more detractors than promoters of your SaaS offerings.
When you know the NPS numbers achieved by your competitors, you strive for achieving the same by improvising processes and product functionality.
Your aim should not be to simply get higher NPS. Rather, it should be identifying the customer issues and making every possible effort to solve them.
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