Re-evaluating the Efficacy of NPS for SaaS Companies
Julie Persofsky
Transforming Companies (1M - 20M ARR) Accelerate their Revenue Potential through Customer Led Growth and Recurring Revenue.
Historically, the Net Promoter Score (NPS) has been a predominant metric for assessing customer satisfaction. Introduced as a qualitative measure of brand loyalty, it posed a simple question: "On a scale of 1 to 10, how likely are you to recommend our company?" While it was crafted for large consumer brands struggling to gauge direct customer-brand relationship, its adoption by Software as a Service (SaaS) companies raises pertinent questions.
The Paradox of NPS in SaaS
NPS primarily gauges customer loyalty, hinting at the intent to repurchase. Yet, a significant drawback in the SaaS landscape is its efficacy in reaching the right respondent—the decision maker. SaaS operations often witness a disparity: the purchaser isn't necessarily the end user. Thus, when surveys reach primary users instead of decision makers, the metric can be misleading.
Moreover, a valid NPS requires an adequately large and representative sample of your customer base. It's not uncommon to find discrepancies in NPS scores between Small and Medium Businesses (SMB) and Enterprise clients. A failure to segment the NPS by customer size further distorts the perceived loyalty.
The gravest concern, however, is the occasional lack of correlation between a high NPS and retention rates. A disparity between customer affection for a product and their renewal intent poses an obvious question: Why?
The equation is simple:
Customer Love ≠ Retention
Impact = Retention
Despite this, companies often default to NPS due to its simplicity and universal recognition. It's time we consider more insightful metrics, especially with advancing Customer Success technologies.
Deciphering True Customer Success: Revenue as the Ultimate Metric
Refining Retention and Expansion Metrics
A pivotal component of customer success is understanding and segmenting retention and expansion metrics. Different industries, company sizes, and buyer types often exhibit unique behaviors and patterns; therefore, a segmented approach can yield more nuanced insights.
Retention Metrics: These should be dissected by industry, company size (such as SMB vs. Enterprise), and buyer type to get a clearer picture of customer loyalty.
Expansion Metrics: Clarity on expansion revenue is crucial—it is essential to distinguish net new revenue from existing customers, specifically tracking upsells and cross-sells separately. Monitoring the time to close on expansion revenue can also indicate the efficiency of sales strategies and customer satisfaction.
Customer willingness to reinvest indicates satisfaction and perceived value. Metrics such as Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) capture this sentiment. However, they are lagging indicators; they spot trends too late for actionable intervention.
Leading Indicators: Beyond Revenue
To proactively address customer needs, one must recognize the tangible impact of a product or service. Is it revenue augmentation, time efficiency, or risk mitigation? While adoption, activation, and onboarding signify a successful account, the essence lies in understanding and measuring the "aha moments" during a customer's journey.
Metrics worth observing include:
领英推荐
Product usage is paramount, but it doesn't always equate to desired impact. Robust technologies like ClientSuccess, Gainsight, and ChurnZero offer profound insights into usage patterns. The challenge is discerning which metrics truly resonate with value. Product adoption, particularly with multiple products, is a promising indicator of both impact and renewal intent.
Importantly, customer memory is fickle. Regularly reminding them of the tangible benefits your product offers is crucial.
A More Personal Approach to Measuring Impact
Except for Product-Led Growth companies with vast customer bases, there's no compelling need for impersonal, generic surveys. Tailored surveys emphasizing specific impact metrics can be more enlightening.
For instance, ask your customers: "Have you achieved [specific impact] with [company name]? Would you like to understand how to achieve [unselected impact] to further drive results?"
Leveraging Insights from Metrics
Metrics serve as a narrative of customer interactions and their journey with the product. For instance, it is common to find that customers engaged with multiple product lines are more likely to renew and expand their contracts.
Product Engagement: Quantifying how many customers are engaged with two, three, or more product lines versus those only using one can inform targeted strategies for product adoption. Collaborating with marketing to design campaigns to increase multi-product usage is vital. Setting clear objectives, such as "X number of new customers to adopt a second product this quarter," can drive focused efforts.
Navigating the Customer Journey through Conversion Rates
Conversion rates (CR) at various stages of the customer journey can offer predictive insights into future behaviour and potential for growth.
Early Engagement: Tracking the percentage of customers who realize the first value or impact within the initial 30-60 days can indicate the effectiveness of the onboarding process.
Onboarding Completion: Measuring the percentage of customers who complete onboarding processes can predict long-term engagement and success.
Full Impact Achievement: Assessing the percentage of customers who experience the full impact of the product guides the understanding of product effectiveness and value delivery.
Executive Business Reviews (EBRs): EBRs are strategic checkpoints. Monitoring the percentage of customers having a renewal EBR approximately six months before the renewal date, as well as those having an expansion EBR, can indicate customer health and potential for upsell.
Driving Customer Led Growth
Customer led growth metrics offer a peek into how your customers are contributing to the sales process:
Customer Qualified Sales Leads (CSQLs): Measure the number of CSQLs arising from customer referrals and cross-sell opportunities. This can directly reflect the advocacy and satisfaction levels of your customer base.
Customer References and Referrals: The frequency with which customers participate in references or make referrals that help close new deals is a testament to their confidence in your offerings. This is also a huge driver of Customer Led Growth to drive net new revenue.
In conclusion, a multifaceted approach to measuring customer success—one that goes beyond traditional metrics like NPS to include segmented retention and expansion metrics, insightful conversion rates, and customer-led growth indicators—is essential for a holistic view of customer engagement and satisfaction. By leveraging these insights, companies can not only fine-tune their strategies to enhance the customer experience but also drive significant growth. It is imperative that we act on these learnings, harness the power of detailed analytics, and create targeted initiatives that ensure our customers are not only satisfied but are also active participants in our growth story.
Account Executive at Full Throttle Falato Leads - We can safely send over 20,000 emails and 9,000 LinkedIn Inmails per month for lead generation
4 个月Julie, thanks for sharing! How are you?
Chief Customer Officer at talech
1 年Thank you for a thoughtful post Julie Persofsky . Two points to consider: 1) Use In-App to reach the right customer: you make a very good point about reaching THE RIGHT customer (the right “persona”). You can achieve that if you use in-app solutions (like Pendo.io or WalkMe? ) where you can target your survey to specific personas. 2) Measure at Different Times Aling The Customer Life Cycle: we measure upon completion on initial onboarding, then after 90 days of usage, then annually. The differences in the scores - and even more when categorizing the comments - among those 3 data points are very telling!
I fix broken QBRs and stop churn.
1 年Personalized tailored assessments are definitely the way to go Julie Persofsky! We have found success focus on asking the customer what their Desired Business Outcomes are by each contact persona - executive buyer, champion, and end user. The richness of insight from each person can help forge an "outcomes-based" health score that forecasts revenue with precision!
Customer Success, Strategy and Operations Leader
1 年I think NPS along with the analysis of unstructured comments can be helpful to understand drivers of promoters and detractors. BUT is NPS really the right question to be asking. Julie Persofsky, with the exception of the uncommon context you described, I agree that it is not the best question. Measuring for outcomes/impact is the best indicator and measuring for key moments that matter that drive impact (onboarding, go-live, upgrade, etc). The best companies are not afraid to ask about impact --- it's a great opportunity to establish the partnership and overcome obstacles. NPS also falls short because it doesn't take into consideration the role of the respondent. Executive Sponsor vs. User, Power User vs. Business Report Recipient. All these roles have a different perspective that cannot be adequately represented with a single NPS response. In today's modern world, NPS is too generic. I think we can do better, by asking better questions. And by analyzing unstructured responses to understand they WHY, the DRIVERS, the actionable insights.
Strategy | Rev Ops
1 年I agree about NPS as it relates to Customer Success, as well as all the metrics you discussed in your article. The one I would add that can make sense if the output makes sense in your overall business strategy is Customer Effort Score, which can serve the dual purpose of providing more actionable insight than NPS does for CS, while assuaging the beliefs that many executives have that we simply must be asking that sort of question! There are a lot of other questions I like to keep in the toolbox for understanding our relationship with our customers, but that's the one I find myself recommending more often than a lot of the others.