A loyal customer base is the cornerstone for any successful business. More so for Software-as-a-Service (SaaS) companies since acquiring new customers on a B2B level is much more difficult. This makes customer retention a necessity for SaaS-based companies. Churn rate is a key metric that needs to be evaluated by all SaaS-based organizations.
Churn is pretty much the rate at which customers who subscribe to a service stop using it. A high churn rate is quite alarming for a SaaS company. This has led to companies using Net Promoter Score (NPS) surveys as a metric to evaluate customer loyalty and reduce churn rate. So what is NPS and how does it work?
What is NPS and How it Works
A Net Promoter Score is an established industry metric to measure customer loyalty. NPS is based on how customers respond to a single question, “On a scale of 0-10, how likely are you to recommend this product/service to a friend or colleague?”
The results of this question are categorized into three distinct categories. Firstly, you have the ‘loyals’ or promoters; these are the customers who rate 9-10 on the rating scale. They are the loyal customer base and would gladly recommend the service to a friend.
The second category consists of 7-8 ratings. They are called the ‘passives’ and are neither loyal nor detracting. They don’t hold any strong opinions about the company.
Lastly, you have the detractors. These are the respondents who hold strong negative opinions about the company. They provide a rating of between 0-6 on the rating scale. They are most likely to add to your customer churn and as such their opinions need to be acted upon on priority.
To make the most of NPS scores, companies add a “why?” at the end of the survey to better understand the factors that decided the rating given to them.
The final NPS score of an organization is calculated by the difference between the percentage of promoters and detractors; i.e., the percentage of promoters subtracted by the percentage of detractors. You can refer our blog on how to calculate NPS for more details.
This means a company’s NPS score can range from -100 to +100, depending on the number of its promoters and detractors. Since passives don’t hold strong opinions about leaving or promoting the company, they are not factored into the NPS equation.
Why NPS is Necessary for SaaS Companies
SaaS is one of the fastest growing business segments today. Since most SaaS tools are cloud-based, they require minimal hardware for support and implementation. As such, companies look to invest in using Saas-based tools rather than develop their own. Added to the fact that most tools are available on a monthly subscription, it is a short-term financial investment rather than a long-term commitment. While this is good for a company that acquires the tool, this is a challenge for a SaaS developer, since it cannot recover its costs until customers use the tool for around a year.
This graph indicates customer loyalty is extremely crucial for SaaS companies as their success is ensured by long-term commitments rather than short-term investments.
How to Effectively Use Net Promoter Score Survey Software
As discussed above, SaaS companies need NPS, and as a service provider, you’ve got your NPS survey software, created an NPS survey and got the results. What happens next? How do you make the most out of your results? Here’s how:
# Identify and Resolve Customer Issues
NPS surveys allow you to identify issues that have been troubling customers for a long time. On checking the results, you may find that some issues have already been resolved and the customers just didn’t know about it. The others might be existing issues that are common to a lot of customers. Use the results of your NPS surveys to identify such issues and talk to your customers personally. Pay special attention to the comments given by detractors as these are the ones who are planning on moving on from your product in the near future.
# Plan Future Products and Improvements
Pay attention to comments and suggestions left by customers at the end of the survey. Look for recommendations that are repeated the maximum number of times. Add those features and recommendations into your product roadmap and let the customers know that you have taken their suggestions into consideration. People appreciate it when their voice is heard.
# Create Brand Advocates
Your promoters love your service and will promote it freely to all of their friends and colleagues. Use the feedback they provide to boost company morale, ask them to leave reviews on product platforms, invite them to refer their friends and colleagues; there’s a lot you can do. You can even upsell them to a new package!
Sending out periodical NPS surveys is necessary for the long-term success of any SaaS company. The availability of NPS survey templates and NPS software has made creating and sending out NPS surveys an incredibly simple task. Acquiring and leveraging customer feedback has never been easier, and in the end, just a single question remains: Will you use NPS surveys to improve your service?