How to Measure Pricing Power and Future Retention Rates with Net Retainer Score

The one number you need to measure retention before your customers churn.
How to Measure Pricing Power and Future Retention Rates with Net Retainer Score

What is Net Retainer Score?

Net Retainer Score measures customer and user retention before customer and users churn. It's the most reliable metric to measure future retention, pricing power, and depth of customer/user engagement.

Why use Net Retainer Score?

Net Retainer Score measures:

  • future retention rates
  • perceived value of products, services, and features
  • pricing power

By measuring retention of products and services pre-churn, Net Retainer Score measures the future retention rate of current users, what product features users find valuable, and how much users are willing to pay.

Understanding product stickiness is the best way to determine who will pay for products and how much they would pay. Whether products and services will be successful depends more on whether people will pay for them than referral rates.

How does Net Retainer Score work?

Unlike Net Promoter Score (NPS), Net Retainer Score doesn't ask users about what they might do in the future. Instead, Net Retainer Score measures how customers feel about your product, service, or business now from their personal experience with it. This gives businesses a much more reliable measure of future success.

Asking customers and users how they feel about your offerings isn't as straightforward as one might assume.

As anyone who's ever asked for a friend's opinion might tell you, asking people for feedback rarely ensures it will be reliable or useful.

Likewise, asking for negative feedback and criticism is also often unreliable because we may unknowingly ask people who would never be our customers by mistakenly qualifying their interest or missing hidden objections they have that would prevent them from paying.

Why asking questions in a positive frame doesn't work:

People hate disappointing others. They are naturally disincentivized to share negative opinions. Negativity makes people look bad to their friends and especially to strangers.

Asking positive questions gives people who would like to sound positive an opportunity to do so at the expense of the quality of feedback your business receives.

To measure whether users will pay for what we offer, we must measure how upset users would be if our products or services went away.

The Emotional Inverse Principle:

The more positive someone feels about something, the more upset they will be when it is taken away.

Net Retainer Score relies on the emotional inverse principle to more accurately measure positive emotion and value to products and services.

This method is quite different than attempting to measure positive feelings by asking positive questions.

Weaknesses of Net Promoter Score

NPS has several weaknesses that make it a bad choice for businesses:

  • NPS is unreliable
  • NPS doesn't measure retention
  • NPS doesn't measure pricing power

Net Promoter Score is unreliable

NPS asks what customers would do in the future, without asking or qualifying if they've already done so. That means NPS asks for an opinion without evidence to back it up. Hypothetical scenarios are notoriously unreliable measures of future behavior.

NPS doesn't measure retention

Net Promoter Score doesn't measure the most important measure of business success: the retention rate of your customers.

Because NPS attempts to measure future customer referral instead of retention, it's not a consistent and reliable measure of it. Secondly, referral rates are often self-evident when analyzing business growth.

When businesses are young, knowing whether your early customers will stick around and keep using your product and service is more important than whether user numbers grow.

NPS doesn't measure pricing power

Net Promoter Score can't measure how much businesses can charge for their product or service. To create a profitable business, businesses must capture value they produce for their customers. Without a reliable measure of how valuable customers perceive your products and services are, it's difficult to price your offerings appropriately.

Measuring referral rates with NPS is a poor replacement to measure pricing power. Measuring referral is only important after businesses validate users will pay for their products.

How is Net Retainer Score calculated?

Net Retainer Scores are calculated on a scale from 0-10 from responses to the following question:

“On a scale of 0-10, how upset would you be if you could no longer use [insert product/service/feature name]?"

Customers that give you a 4 or below are Detractors, scores of 5 or 6 are called Passives, and 7 or above are Retainers.

To calculate your Net Retainer Score, subtract the percentage of Detractors from the percentage of Retainers. If 50% of respondents were Retainers and 10% were Detractors, your Net Retainer Score would be 40.