Moving Beyond NPS in a Subscription Economy

Co-Authors Emilia D’Anzica, Founder & Managing Partner, Growth Molecules, and  Andrew Green, Managing Partner, Broad Reach Growth.

Metrics are how successful businesses manage themselves and keep score. Which metrics to use is an ongoing discussion as leadership teams seek insight into the organization’s health and effectiveness. Why? Because what gets measured gets done. The ongoing search for the optimal mix of metrics or Key Performance Indicators (KPIs) has led to several performance measurement innovations.

In the early 1990s, Robert S. Kaplan and David Norton introduced the concept of the Balanced Scorecard. The framework covers four broad perspectives:

  • Financial
  • Customer
  • Internal Processes
  • Talent

Notably, the framework began a pivotal shift for managers to move beyond traditional financial measures. Leaders now had a vocabulary for the key drivers of financial outcomes they could hold themselves accountable for.  An important objective was to create more than a snapshot of financial results by creating actionable insights into the drivers of economic outcomes.

A decade later, Fred Reicheld introduced the Net Promoter Score (NPS) in an article titled: The One Number You Need to Grow. The performance measure innovation was quickly adopted by Business-to-Consumer (B2C) companies and, soon after, Business-to-Business (B2B) organizations.  NPS was and still is leveraged to augment customer perspective metrics in the Balanced Scorecard.  In the 20 years since, NPS’s correlation with growth has ensured its broad adoption. It has become the gold standard metric for Software-as-a-Service (SaaS) investors as both a leading and lagging indicator of durable growth.

However, while investors may consider NPS an essential measure for evaluating companies, business operators themselves have been moving away from reliance on this widely used metric. According to Stephen Fulkerson of the Technology & Services Industry Association (TSIA), while  NPS has value in assessing Brand Reputation, it’s difficult to make operating decisions.
 

Stephen shared with Emilia that in interviews conducted with TSIA members,  they reported that an over-reliance on NPS results in limitations to growth. The conversation highlighted that companies see NPS as one—but not the only—source of voice of the customer insight at any given point in time.

Limitations include:

  • The inability to forecast Renewals or Retention
  • Limited Return on Investment
  • Lack of reliability

Actionable insight is what useful metrics offer management teams. If NPS doesn’t fully meet the challenge, what might?

Stretching Beyond NPS

Over the past several years, NPS’ perceived limitations have pushed managed services leadership teams to find more meaningful metrics.  In an attempt to fill the gap, they are increasingly relying upon Customer Satisfaction (CSAT) and Customer Experience Sentiment (CES) to generate more actionable insights, to break down organizational silos and to support decision making.

What Stephen and his TSIA colleagues have heard is that even CSAT and CES don’t effectively support accurate forecasting of Customer Retention or Renewal rates. More accurate renewal and retention forecasting requires a different set of questions.  

What is the ‘New’ Innovative Metric to Consider?

To address the “actionable metric”  gap, TSIA has developed a new metric: Kore Score (KS). The KS intent is to enable management teams to measure and drill down into four distinct issues:

  • (R)etention: Likelihood of customer retention
  • (R)enewal: Likelihood the customer will renew at least 100% of their upcoming renewal
  • (R)eputation: Likelihood the customer will be a positive Reference
  • (O)utcome: Likelihood that the customer will receive expected value/outcomes.

The calculated score for each of the four areas is averaged to create an overall Kore Score that merits a place on an Executive Dashboard but, importantly, allows leaders to drill down into issue specificity if the higher-level KS begins to shift.

For management, the KS elements have several benefits:

  • Retention and Renewal: Using a Likert scale for both retention and renewal enables management to create a more accurate probabilistic revenue forecast and support renewal and retention motions for specific customers.
  • Outcome: This question rarely gets asked or measured, but it’s an effective leading indicator for Retention and Renewal.  It also provides the basis for thinking about pricing and, with follow-up questions, can provide insight into service offer bundling and price elasticity.
  • Reference: Most closely aligned with NPS, the distinction is that this explicitly addresses “positive” referrals.

No single measure is sufficient for making all management decisions, but KS’s potential value is its capacity to provide critical insight into the key drivers of sustained and profitable growth. TSIA is beginning to roll this out, but the potential value of KS should have management teams curious about its application. 

Growth Molecules™ is a Customer Success Advisory firm, helping companies protect and grow revenue. 
We do That in Three Ways:

  1. We assess your current capabilities: People, Processes, and Systems. 
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Growth Molecules™ is the ideal partner in revenue growth and customer success management. Our proven methodologies swiftly identify organizational needs, and strategically plan solutions to positively impact business outcomes. Our team of award-winning strategists are former customer success leaders who understand what it takes to increase revenue through customer success. Don’t take it from us, take it from our customers through case studies and G2 Reviews to prove it.

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About the Author:

Andrew Green, Managing Partner, Broad Reach Growth.

Andrew works with CEOs in lower mid-market managed service/professional service companies to accelerate EBITDA growth. In his work with CEOs and their teams, Andrew combines the analytical and project execution rigor developed during a career in consulting with the pragmatic perspective of a former CEO with two successful exits.

Prior to Broad Reach Growth, Andrew was a Senior Partner at the management consulting firm Kearney. There, Andrew worked with clients across a spectrum of industries to define and implement value building strategies and operational improvements. Andrew also served on the firm’s North American Management Committee and led the firm’s North American Strategy & Organization practice. Andrew remains a Kearney Partner Emeritus.

Andrew currently serves as a Senior Advisor to Strategen Consulting, Lifeboat Ventures and the Chasm Institute. He earned a BA from Brown University and an MBA from Harvard Business School.

About the Author:

Emilia D’Anzica, Managing Partner, Author, Growth Molecules

Emilia D’Anzica, MBA, PMP, is the founder and managing director of Growth Molecules,™ a management consulting firm focused on protecting and growing revenue. The company aims to help organizations increase profit while maximizing customer value. Emilia is also on several advisory boards globally and an active contributor to the Forbes Council. She is a part-time Adjunct MBA Marketing Metrics Professor at Saint Mary’s College of California.

 

As an early employee at several successful companies, Emilia has amassed over 25 years of customer experience in customer leadership roles, including as Chief Customer Officer.

 

Emilia holds a BA from the University of British Columbia and an MBA with Honors from Saint Mary’s College of California. She is PMP and Scrum-certified. Emilia resides with her three children and partner in the San Francisco Bay Area, California. Her first book is Pressing ON As A Tech Mom: How Tech Industry Mothers Set Goals, Define Boundaries, & Raise The Bar for Success.

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