“What gets measured gets managed.” (Peter Drucker, The Practise of Management). Drucker invented many of the techniques used in business management today. His focus on measurement has been taken to heart by managers in virtually all sectors.
It’s essential to measure the right things, however. Adopting a particular metric, perhaps because it’s easy to measure, can cause management to focus on the wrong priorities. One example of this is Net Promoter Score (NPS)
Here we examine what NPS is, how it is used in B2B industries such as SaaS and why it is inferior to developing genuine customer partnerships.
What is Net Promoter Score?
NPS is a measure of customer experience. Existing customers are asked: “How likely is it that you would recommend this SaaS provider using a score of 1-10?” Responses are sorted into 3 groups:
– Score 9-10: promoters, loyal long-term customers who may recommend via their networks
– Score 7-8: passives, satisfied but indifferent customers who may be poached by a competitor
– Score 1-6: detractors, unhappy customers who will give negative feedback through their networks
NPS is calculated by summing the number of promoters, passives and detractors to give a percentage for each group. NPS = %Promoters – %Detractors. In the SaaS market, the industry average is 31; an NPS of 50 is considered a good score and very few businesses achieve 60.
Many SaaS providers use NPS as an indicator of their overall success in serving their customers. Combining NPS with the subsidiary question “What is the primary reason for this score?” gives a starting point for understanding the level of customer satisfaction.
This information can be shared with colleagues across the business to drive through improvements. However, placing too much emphasis on NPS or using it as the only measure, can be misleading and restrictive. Genuine customer partnerships are far more important to business success.
Why are genuine customer partnerships more rewarding?
1. NPS is a measure of where the business is today, not where it needs to go
Although NPS can be a useful indicator of customer satisfaction, it doesn’t help with setting the future direction of the business. It is a measure of whether today’s products and services are satisfying customers. Ultimately it is measuring the success of the SaaS provider rather than the success of its customers.
2. Nurturing customer partnerships will lead to effective two-way communication
By viewing customers as partners, a SaaS provider perceives its customers’ success as a high priority. The question: “Is this solution meeting your needs and will it continue to do so?” will help to start a meaningful conversation.
An engaged customer, seeing the opportunity to influence the product roadmap, will reveal more about their aspirations and potentials. They will be more willing to contribute in the form of use cases, example data and discussion forums.
They will also be more loyal. As well as a source of dependable recurring revenue, a loyal customer is an essential asset in future growth. You’re then measuring Customer Lifetime Value (CLV) although even this is just another metric.
There’s a catch, however. NPS is easy. An administrator can circulate questionnaires and collate the results. Building customer partnerships is much more difficult. It may need a different approach in customer-facing teams; changing their hearts and minds requires influencing skills. Spending time with customers also requires talented individuals. If those people are on the payroll they will already be flat-out.
Management vs leadership.
Peter Drucker is best known for his quote about measurement. However, he also said, “Management is doing things right, leadership is doing the right things.” Choosing those “right things” is certainly a challenge in today’s business environment.
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