NPS 3.0: earned growth

You have all seen the question: On a scale from 0 to 10, how likely would you be to recommend our company to a friend?

Since its introduction in 2003, the Net Promoter System (NPS) has become one of the most widely used ways to measure how well companies turn customers into advocates. But as its popularity grew, companies started misusing it, and the credibility of NPS decreased. Self-reported scores without any kind of auditing made it harder to trust the results.

To solve this, Fred Reichheld, the creator of NPS, introduced a new complementary metric in 2021: the earned growth rate. It tracks revenue growth that comes from loyal customers who return or refer others. It’s a combination of net revenue retention (NRR) and earned new customers (ENC), and it provides insight into how much value your service is generating on its own. A customer who signs up due to a referral or recommendation is considered an “earned” customer. If they came from ads, promotions, or sales outreach, they’re a “bought” customer.

To calculate your earned growth rate, companies need systems that can track customer-level revenue over time. They also need to ask new customers how they found the company. An “earned” customer, captured through referral or recommendation, will contribute to your earned growth rate.

Underestimating the value of your NPS and earned growth rate will force you to keep investing in marketing and sales, without ever fully capturing the value of the customers who sign up with you.

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Harvard Business Review said it best: “It [NPS 3.0] solves a vital challenge that our financial systems fail to address.”

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Everyone paying attention knows these are metrics worth tracking. But in the chaos of building a company, when everything matters at once, when do you actually need to start measuring?

We recommend paying attention to your NPS from the very beginning. Once you have anything in the hands of users, you should ask how likely they are to recommend your service to someone else. You don’t need a perfect system right away. Ask in an email survey or add a simple pop-up in your product. But don’t fool yourself by only asking a selection of customers. Surveying all your customers will give you valuable insights to build on, even if it’s not done in a super sleek way.

Measuring your total earned growth rate (by calculating NRR and tracking ENC) can wait until you have repeatable sales and are seeing customer movement without your direct involvement. Staying on top of the customer’s reason for signing up (bought or earned) is important, but in the very early days, you’ll know this from talking to them yourself. Once you exceed five new customers per month (for B2B), you should find automagic ways of tracking their origin.

Imagine knowing for sure that 3 out of 5 of your new customers were referrals. That would significantly affect your go-to-market strategy? Or imagine knowing that 0 out of 5 were referrals, would that change how you think about customer satisfaction and improving your user experience?

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Investing in your current customers, and making it a no-brainer for them to refer you, is often a much cheaper path to successful scaling. But it requires insight, because choosing to invest in Product over Sales can easily be seen as the riskier move.

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Happy scaling!

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