4 reasons NPS is your startup best friend
Every successful startup goes through 5 major steps:
- Problem / Solution fit
- Product / Market fit
- Scale ( growth )
- Bonus step: acquisition or IPO
After reaching product/market fit, most companies start losing direct connection with their customers. Our primary goal at this point is to grow quickly and get maximum revenue and/or market share. We start adding new features, explore new opportunities and try new segments. The question is how can we still make sure that we have a great product that customers love and want share with friends? After all, the most successful companies are ultimately built on word-of-mouth.
“While referral programs can be very effective in spreading the word about your product, you need to have a product worth spreading first.”
We still have to contact and interview 5–15 users every week to make a reality check and gather new insights. However, it’s not enough for a fast-growing startup with thousands of users from all over the world.
Great support? It’s extremely important, but will hardly help you understand how much your users love your product. Support is for fixing problems and keeping unsatisfied or confused customers who see value in your product.
In my experience, the only way to make a reality check is to ask a simple question — “How likely are you to recommend the product to a friend or a colleague?”.
What is NPS
NPS ( Net Promoter® Score ) measures customer loyalty and predicts business growth based on survey results. NPS tools ask only one question — “How likely is it that you would recommend our product?”. The scoring based on a zero to ten scale. Users who gave score seven and higher are more likely to promote your product and contribute to the growth.
People who answer in a range from 0 to 6, called “Detractors”. They are disappointed by the product or the service and probably won’t purchase again from the company. Also could potentially damage the company’s reputation through negative word of mouth.
‘Passive’ users give a score of 7 to 8. These users are overall satisfied with the product, but could easily switch to a competitor’s solution. They usually don’t spread any negative word-of-mouth but also not enthusiastic enough about your product to promote it.
‘Promoters’ users give a score of 9 or 10. They love the product, very likely to continue investing in your product, pay for it and recommend to other potential buyers. Those users are the enthusiastic evangelist and your best sales people.
How to measure NPS
Let’s say that we asked 125 users how likely they are to promote us.
- Only 6 of them ( 4.8% ) picked a number lower than 7.
- 64 users (51.2%) chose 7 or 8.
- Finally, we’ve got 55 users (44%) who love our product and ready to promote.
Our NPS is = Promoters (44%) — Detractors(4.8%) = 39.2.
Low NSP can be an early warning to dig deeper into potential customer satisfaction and loyalty issues. However, Net Promoter Scores are often averaging quite low. Fred Reichheld, in his calculation of 400 companies across 28 industries back in 2003, found that the median promoter score was just 16.
NPS which is higher than zero is felt to be good, and an NPS of +50 is excellent.
So why NPS is your key performance indicator?
1. Single and straightforward performance indicator
KPIs exist to keep companies on track; to measure different business processes to maintain a level of performance that will guarantee growth. There are many performance indicators for marketing and product activities. But there is only one indicator that tells us how much your customers love your product. You just need to ask 100 people one simple question to understand how good your product is. The only KPI that can predict business growth.
2. Easy to ask and easy to answer
I don’t think there is an easier way to get a quick reality check. It’s a single question with the simplest answer. Just pick a number. No long surveys, no texting, no phone calls. Just click-and-go.
3. Best incentive
So the user picked 9 or 10? He loves your product and ready to share with friends. Isn’t it the best time for asking him or her to actually promote and recommend the product?
4. Great way to catch unsatisfied customer
The User picked 7 or 8? Great opportunity! We’re one step away from making him or her absolutely happy with our product. Let’s ask one more question and try to understand what else can we do to make him or her happy.
The user picked a number lower than 7? We catch him on time before he left us or even damage our product reputation. Let’s schedule a quick call with the user and understand what’s wrong.
I love NPS because it’s probably the simplest way to make a reality check. I love NPS because it shows me the big picture but allows me to identify a position and status of specific users and act accordingly. Of course, as with any other tool, we have to use it right.