“If you cannot measure it, you cannot improve it” – Lord Kelvin

When it comes to your SaaS business, if you aren’t already obsessed with customer measurements and metrics, you should be. After all, SaaS is a recurring revenue business, which means the real profits occur over the customer’s lifetime, not at a single point of sale. And that means that understanding which customers are happy and why -- and which ones will go on to become loyal and why -- is crucial to understanding how to grow your business. That said, if you aren’t measuring the right things, you’re just wasting your time and not really learning anything of value. But with the right metrics, you’ll be armed with the knowledge you need to make informed decisions.

That’s where “Measure This, Not That” comes in. In this series, we’ll show you where popular opinion gets it wrong, and which metrics you should ignore and which ones you should really be focused on in order to gain valuable actionable insights into your customers.

Measure This: Net Promoter Score

Not That: Customer Satisfaction

What do you usually measure? Customer Satisfaction

Why do you do this?

When you take a customer satisfaction survey, what you’re ostensibly asking is whether or not that customer has had a satisfactory experience. But what you’re really trying to find out is whether that customer is going to be retained and if they’re going to become loyal and long term. But asking different variations of “How satisfied were you with this product/experience?” doesn’t really tell you that at all. Satisfaction on its own doesn’t reveal anything valuable in the long term. It’s incomplete, and it’s not predictive of future behavior.

What should you measure instead? Net Promoter Score, or NPS.

Why should you do this: This metric will give you a better idea of what you’re actually trying to discover. Customers, as it turns out, can roughly be divided into three groups:

  • Promoters
  • Passives
  • Detractors

are the ones that are not only satisfied (passives may be satisfied as well) but also enthusiastic and potentially loyal and in it for the long haul.
According to a 2013 Net Promoter System report, the Net Promoter Score is important because:

  • Promoters account for 80 percent of referrals in most businesses
  • Detractors, in turn, account for 80 percent of negative word of mouth
  • Promoters generally defect at lower rates than other customers, which means that they are more likely to have a longer, more profitable relationship with your business
  • On average, a NPS leader in a given industry outgrows its competitors by more than double

There are many benefits to prioritizing the NPS over CSAT including:

  • NPS is a better way to measure customer loyalty
  • It’s a better, more accurate way way to track customer happiness from one period to the next
  • Promoters tend to spend more than passives and detractors, and knowing how and why someone becomes a promoter can help you improve your product and grow your business. In fact, a recent Bain study of affluent banking customers determined that promoters are worth an average $9,500 more to a bank than detractors.

And asking the right question to determine where a customer falls -- promoter, passive, or detractor -- has an additional advantage in that it’s a simple question that doesn’t require much effort to answer. And that means you’re more likely to get an accurate spread of responses since it’s so low effort. It’s simply a matter of framing your question to determine potential loyalty and retention: “How likely would you be to recommend our company to a friend or colleague on a scale of 0 – Very Unlikely to 10 Very Likely.” Promoters will answer with a score of 9 to 10.

The overall NPS score for your business is calculated by taking the percentage of respondents who are promoters and subtracting the percentage of respondents who are detractors. This will generate a score ranging from -100 to 100, which is your Net Promoter Score. It’s helpful to compare how your net promoter score changes over time when compared to changes or improvements you’ve made to your product to help you determine a correlation.

Keep in mind, though, that while it’s definitely a much more accurate indicator of potential customer loyalty, it’s essentially a feedback question, and there’s no proof that this customer will actually promote your product or be a long term loyal customer -- and that’s why you should measure more than one metric to get a more complete picture. (And if you really want to dig deep and understand your customers' needs, goals, and frustrations, nothing can beat the SLOW interview process, which we discuss here.

To learn more, check out the other articles in the "Measure This, Not That" series: 

Measure Conversions, Not Conversions

Measure Activity Churn, Not Customer Churn