VC at Jackson Square Ventures
Conceptually, NPS – the Net Promoter Score, is an objectively sound way to measure the potential for a product to achieve viral adoption. For the uninitiated, the calculation is simple. You ask your customers to answer the following question on a scale of 0 to 10:
“How likely is it that you would recommend [our company / product / service] to a friend or colleague?”
The math is straightforward: NPS = %😀 – %😡. And the results are easy to understand. Positive NPS means word-of-mouth will contribute to customer growth. Negative NPS means that word-of-mouth will drive potential customers away.
Since only 9’s and 10’s get to be 😀 (they’re called Promoters) while anywhere from 0 to 6 rates as 😡 (they’re called Detractors), NPS intrinsically illustrates the cognitive biases we have as people that weighs negative opinions more strongly than positive ones.
I used to think that the NPS represented a good way to gauge how easily a company will spread virally. After being a founder many times over, however, I find myself doubting its usefulness. Much like the answer to life, the universe and everything, it’s the question that matters. So let’s break it down:
“How likely …”
Starting the question with a passive and theoretical “how likely,” seems, at best, loosely tied to the concept of an active promoter. Without commitment, we can easily convince ourselves that we would be a 9 or a 10 in some theoretical future under the right circumstances. But what percent of self-identified promoters would remain so if asked, “Will you commit to recommending this product to at least one friend by the end of the week?” And even in that case, what percent would actually honor that commitment, even if regularly prompted?
“… you …”
Who exactly? Baked into this one word is a tremendous ability to game the system. Which “you’s” are the company actually addressing? People who have downloaded an app? People who have created a user account? People who have paid the company for a product or service? Companies are free to choose the most flattering angle from which to take their NPS selfie. In the worst of cases, companies can survey the largest group possible and choose to segment after the fact – under whichever pretext lets them survive the lax external scrutiny they will likely face.
“… recommend …”
What are we talking about here? Proactive gushing or a willingness to say “s’aight” when the company comes up in a group conversation. Are these people sharing on Twitter? Are they calling their friends? Are we talking the enthusiasm of a golden retriever or an overfed sloth? True promoters are those who authentically and proactively espouse the benefits of a company’s product with the intention that others adopt it.
“… friend or colleague?”
The final bookend to this flawed question fails to concretely define the recipient of the recommendation. Promoters may answer that way because they think that someone in their extended circle probably exists who they’d be willing to talk to about the product. And detractors might take the question too literally and answer in the negative because they would rather recommend to, say, a stranger at a conference or an acquaintance who works at another company, neither of whom fall into the bucket of “friend or colleague.”
I suspect that NPS became popular because, in some cases, founders lack the ability to show actual virality, yet still want to present their company as one that could grow through word of mouth. In other cases, founders misguidedly use NPS as a measure of customer satisfaction, a concept better measured by the CSAT score, a metric which I have never seen in a pitch deck.
True promoters are those who authentically and proactively espouse the benefits of a company’s product with the intention that others adopt it.
A better metric would be one that measures the rate at which customers with positive lifetime values generate more customers with positive lifetime values through word of mouth. There are, of course, techniques that companies use like referral incentives, which provide explicitly trackable metrics, but most word of mouth referrals don’t involve invite codes. With that in mind, one could ask instead “Have you recommended our company/product/service to someone who then went on to [activity indicative of positive lifetime value]?” Providing a few options like “Yes,” “I’ve recommended but not sure if [activity] occurred,” “No, but I probably would,” and “No, and I will most definitely not,” would help identify who the actual, committed, promoters are, who the people are that could be coaxed into becoming Promoters, and how many people view the company in a merely passive or outright negative light. A score from a question like this would demonstrate the true strength of a company’s word of mouth and not leave someone like me wondering how you gamed your NPS.
I’m curious to hear your thoughts. Are there other, better ways to measure the willingness of customers to generate value through word of mouth?